Production Possibility Curve (PPC) Quiz
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Questions and Answers

What does the Production Possibility Curve (PPC) illustrate regarding an economy's resources?

  • Resources can only produce one type of good at a time.
  • Resources must be fully and efficiently utilized to maximize production. (correct)
  • Resources are unlimited and can achieve any production level.
  • Resources must be allocated without any opportunity cost.

What does a point inside the PPC indicate?

  • Optimal production of two goods.
  • Maximum efficiency in resource utilization.
  • Inefficient use of resources. (correct)
  • Unattainable production levels given current resources.

Moving from one point on the PPC to another demonstrates which economic concept?

  • Scarcity.
  • Allocative efficiency.
  • Opportunity cost. (correct)
  • Economic surplus.

What does an outward shift of the PPC signify?

<p>An increase in resources or improvements in technology. (B)</p> Signup and view all the answers

How is opportunity cost represented on the PPC?

<p>By the slope of the curve. (D)</p> Signup and view all the answers

If the country is at a point producing 6 million units of food and 4 million units of clothing, which of the following is true?

<p>It is using all resources efficiently. (A)</p> Signup and view all the answers

What will happen if the country moves from producing 3 million units of food to producing 5 million units of food?

<p>They must reduce clothing production from 6 million to 4 million units. (C)</p> Signup and view all the answers

What does the concept of scarcity imply in the context of the PPC?

<p>Choices must be made regarding the allocation of limited resources. (C)</p> Signup and view all the answers

At what condition does a point on the PPC represent efficiency?

<p>When resources are fully and efficiently utilized. (A)</p> Signup and view all the answers

What is the opportunity cost of producing 2 extra million units of food?

<p>1 million units of clothing (B)</p> Signup and view all the answers

Which of the following factors can cause an outward shift in the Production Possibility Curve (PPC)?

<p>Technological advancements (B)</p> Signup and view all the answers

What does an inward shift in the Production Possibility Curve signify?

<p>Decrease in production capacity (B)</p> Signup and view all the answers

In the kinked demand curve theory, what happens when an oligopolist raises its price?

<p>Sales fall due to customers switching to rivals (A)</p> Signup and view all the answers

What is one of the asymmetrical assumptions of the kinked demand theory?

<p>Lower prices encourage price competition among rivals (D)</p> Signup and view all the answers

Which of the following factors can lead to an inward shift in the Production Possibility Curve?

<p>Natural disasters (C)</p> Signup and view all the answers

How does understanding the Production Possibility Curve (PPC) aid in economic decision-making?

<p>It clarifies the concept of scarcity and efficiency (C)</p> Signup and view all the answers

According to the kinked demand theory, what is expected behavior of competitors if one firm lowers its prices?

<p>They will lower their prices as well (D)</p> Signup and view all the answers

What is a primary feature of an oligopoly, as described in the kinked demand theory?

<p>Stable prices despite competitive behaviors (A)</p> Signup and view all the answers

What role do technological advancements play in the Production Possibility Curve?

<p>They allow for more efficient production methods (B)</p> Signup and view all the answers

Flashcards

Production Possibility Curve (PPC)

A graph showing all possible combinations of two goods or services an economy can produce using all its resources efficiently.

Scarcity

The fundamental economic problem of limited resources to meet unlimited wants.

Opportunity Cost

The value of the next best alternative sacrificed when making a choice.

Efficient Production

Using all available resources to produce the maximum possible output.

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Inefficient Production

Producing less output than possible with available resources.

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Unattainable Production

Outputs beyond the PPC, given current resources and technology.

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Economic Growth

An outward shift of the PPC, indicating an increase in production capacity.

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Increasing Opportunity Cost

Opportunity cost increases as more of one good is produced because resources are not equally efficient at producing different goods.

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PPC and Choice

The PPC highlights scarcity & forces decisions on what to produce.

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Opportunity cost of extra food (3M food.)

To produce two more units of food (from 3M to 5M.), 1M unit of clothing will be lost.

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Opportunity Cost of Food

The amount of clothing production sacrificed to make 2 million extra units of food.

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PPC Outward Shift

Economic growth causing an increase in the economy's production possibilities.

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PPC Inward Shift

A decrease in the economy's ability to produce goods and services.

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PPC Factors (Outward)

Technological advancements, increased resources, and better education/training boost production.

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PPC Factors (Inward)

Events like natural disasters, resource depletion, and a declining workforce decrease production.

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Kinked Demand Curve

A model explaining price stability in oligopolies, even when there's no collusion.

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Oligopolies

A market structure with a few large firms.

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Price Stability

The tendency for prices to remain relatively constant in some markets.

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Asymmetrical Assumptions

Price cuts by one firm are matched by rivals; price increases are not matched.

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Study Notes

Production Possibility Curve (PPC)

  • PPC is a graph showing all possible combinations of two goods/services an economy can produce using all available resources efficiently.
  • It illustrates scarcity – limited resources to meet unlimited wants.
  • Every point on the PPC represents a different combination of the two goods.
  • Points on the PPC represent efficient production levels.
  • Points inside the curve show underutilization of resources.
  • Points outside the curve are unattainable with current resources and technology.

Scarcity and Choice

  • PPC highlights resource scarcity, forcing economies to make choices about production.
  • Each point on the curve reflects a specific combination of goods, selected from all available options.

Opportunity Cost

  • The slope of the PPC indicates opportunity cost, the value of the next best alternative foregone when a choice is made.
  • As production of one good increases, the opportunity cost of increasing another rises (increasing opportunity costs).

Efficiency

  • Points on the PPC represent efficient use of resources.
  • Points inside the curve show inefficient use of resources.
  • Points outside the curve are currently unattainable.

Economic Growth

  • Economic growth is represented by an outward shift of the PPC.
  • Factors influencing economic growth include increased resources, technological advancement, and workforce skills.

Shifts in the PPC

  • Outward shifts indicate economic growth.
  • Inward shifts indicate a decrease in the economy's productive capacity due to factors like natural disasters, resource depletion or workforce decline.

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Description

Test your understanding of the Production Possibility Curve (PPC) and its implications on economic choices. This quiz covers key concepts like scarcity, opportunity cost, and the representation of efficient production levels. Challenge yourself and see how well you comprehend the relationship between resources and production in an economy.

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