Production Possibilities Curve Quiz
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Questions and Answers

What is the PPC?

A production possibilities curve is a curve that shows the possibilities of production of a combination of certain goods.

What is a PPS (Production Possibilities Schedule)?

A production possibilities schedule is a table of possible production of goods.

What is moving along the curve?

When you trace a PPC curve and figure out M.O.C from one point to another.

Why are PPCs generally bowed out?

<p>Because the M.O.C is not constant; as production increases, the opportunity cost increases.</p> Signup and view all the answers

What is the Law of Increasing Cost?

<p>As an economy shifts production from one good to another, it must forego increasingly large amounts of the first good for each additional unit of the second good produced.</p> Signup and view all the answers

What happens when business owners start producing a new good?

<p>Business owners typically start with the best resources, but using more units requires using less optimal resources.</p> Signup and view all the answers

Are points beyond the PPC possible?

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

What is the PPF or Production Possibilities Curve?

<p>A graph illustrating the combinations of two types of output that can be produced by a society using the available resources and technology.</p> Signup and view all the answers

What are the four assumptions of a PPF for two outputs?

<ol> <li>The types and amounts of available resources are fixed. 2. The technology used to produce the outputs is constant. 3. Available resources are fully employed. 4. Production is efficient.</li> </ol> Signup and view all the answers

What is production like when you are under/inside the PPC?

<p>Being inside the curve is possible but not efficient; some resources are not being used effectively.</p> Signup and view all the answers

What is production like when you are on the PPC?

<p>Being on the curve is both possible and efficient.</p> Signup and view all the answers

What is ceteris paribus?

<p>It means everything else in the economic model stays the same when a change occurs.</p> Signup and view all the answers

What does the PPC look like when you can produce more of both goods?

<p>The PPC shifts outward/up/right, and the maximum production of both goods is larger.</p> Signup and view all the answers

What does the PPC look like when you can produce more of one good?

<p>The PPC increases only for the maximum production of the good that was affected.</p> Signup and view all the answers

What is the marginal rate of transformation (MRT)?

<p>The slope of the PPF and the measure of the opportunity cost of moving from one point to another along the curve.</p> Signup and view all the answers

What does achieving economic growth require?

<p>An increase in the quantity of resources, productivity of those resources, and/or improvement in technology.</p> Signup and view all the answers

What is industry-specific growth?

<p>It occurs if the economy experiences an increase in the quantity or quality of resources or an improvement in technology in the output manufacturing sector.</p> Signup and view all the answers

What is technical efficiency?

<p>A type of efficiency demonstrated by the production possibilities model when the economy is producing on its PPF.</p> Signup and view all the answers

What is technical efficiency for an individual firm?

<p>Achieved by producing a given level of output with the fewest resources or by producing maximum output using a given amount of resources.</p> Signup and view all the answers

What is economic efficiency or allocative efficiency?

<p>Efficiency in producing a good/service, as long as marginal benefit exceeds marginal cost.</p> Signup and view all the answers

Study Notes

Production Possibilities Curve (PPC)

  • A PPC visually represents the maximum production capabilities of two goods within an economy based on available resources and technology.
  • It illustrates trade-offs between different goods, reflecting choices made in production.

Production Possibilities Schedule (PPS)

  • A PPS is a tabular representation detailing possible production levels for two or more goods, providing a numerical insight into the PPC's graphical data.

Movement Along the Curve

  • Moving along the PPC signifies a change in production levels of one good in response to changes in the other, reflecting the concept of Marginal Opportunity Cost (M.O.C).

Bowed-Out Shape of PPC

  • The PPC is generally bowed out due to increasing opportunity costs; producing more of one good necessitates sacrificing larger amounts of the other good.

Law of Increasing Cost

  • Transitioning production from one good to another involves significantly larger sacrifices of the first good for each additional unit produced of the second good.

Resource Allocation When Producing New Goods

  • Initial production shifts utilize optimal resources; however, as output increases, less efficient resources must be employed, leading to diminishing returns.

Feasibility of Points Beyond the PPC

  • Points beyond the PPC are unattainable with current resources; however, points within the PPC indicate underutilization of resources.

Assumptions of the PPF

  • Resources available are fixed.
  • Technology remains static.
  • All resources are fully employed.
  • Production operates efficiently.

Production Inside the PPC

  • Operating within the PPC signifies inefficiency; some resources are either idle or not fully optimized.

Production On the PPC

  • Being on the PPC means producing at maximum efficiency, utilizing resources effectively.

Ceteris Paribus

  • The term refers to maintaining all other variables constant aside from the one introduced variable in an economic model.

Shifts in the PPC

  • An outward shift in the PPC indicates growth potential, allowing increased maximum production for both goods.
  • A targeted increase in one good raises only that good's maximum production capacity, shifting the curve accordingly.

Marginal Rate of Transformation (MRT)

  • MRT is the slope of the PPF, quantifying the opportunity cost of reallocating resources from one good to another.

Achieving Economic Growth

  • Economic growth necessitates enhancements in resource quantity, resource productivity, and technological advances.

Industry-Specific Growth

  • Growth specific to an industry arises from improved resource quality, quantity, or technology within that sector.

Technical Efficiency

  • This efficiency is reached when an economy operates along its production possibilities frontier (PPF) to maximize potential output.

Technical Efficiency for Firms

  • For individual firms, technical efficiency is achieved by producing the highest output with a given resource set.

Economic or Allocative Efficiency

  • Economic efficiency occurs when the production level of a good is optimized, focusing on the point where marginal benefit equals marginal cost (MB=MC).

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Description

Test your knowledge on the Production Possibilities Curve (PPC) and its related concepts like the Production Possibilities Schedule (PPS) and Marginal Opportunity Cost. This quiz covers the graphical representation of production capabilities, trade-offs, and the Law of Increasing Cost. Challenge yourself to understand the underlying principles of economics!

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