Production Possibility Curve Quiz

A PPC graph illustrates the maximum possible combinations of two goods that can be produced with given resources and technology.

The assumptions include: choosing between two goods, given resources and technology, full employment of resources, interchangability of resources between goods, no specific resources for one good only, and considering productive efficiency in physical terms.

Shifting resources from one good to another decreases the production of the first good and increases the production of the second good.

Full employment of resources means no wastage or underutilization of resources in the economy.

This assumption is made to allow for the interchangeability of resources between the production of different goods.

The central problems of an economy are what to produce, how to produce, for whom to produce, problems of growth, choice between public and private goods, and the problem of merit goods production.

The production possibilities are determined by the maximum output combinations achievable with given resources and technology.

Addition in the stock of capital is referred to as capital formation.

Technique of production refers to the exact proportion of factor inputs used in the production of goods.

Merit goods are the goods whose consumption benefits both the user and non-users.

Private goods are available only to selected individuals, while public goods are available to everyone with no exclusions.

This statement means that economic reasoning can only provide applicable conclusions if the assumptions made are realistic; otherwise, it would have correct reasoning but without practical conclusions.

The price elasticity of demand at the midpoint of a linear demand curve is equal to 1 (unit elastic).

The price elasticity of demand is zero where the demand curve touches the X-axis.

The price elasticity of demand is infinite where the demand curve touches the Y-axis.

For any point between A and C on the demand curve, the price elasticity of demand is greater than 1 ($E_p > 1$).

For any point between B and C on the demand curve, the price elasticity of demand is less than 1 ($E_p < 1$).

To construct a demand curve with unitary price elasticity at all points, we construct rectangles with equal areas representing the outlay at different price-quantity combinations. The curve joining all such points gives a demand curve with unitary price elasticity.

Positive economics describes reality without stating desirability, while normative economics is concerned with what ought to be and suggests ways to achieve societal goals.

Microeconomics studies individual economic units and small groups, while macroeconomics covers large collections, aggregates, and macrovariables like national income and employment.

A stock variable is measured at a point in time, while a flow variable is measured over a period of time.

Equilibrium is reached when the different forces pulling a variable in different directions are in balance, and the value of the variable stops changing.

The assumption of ceteris paribus (all other things remaining the same) is made in static economic analysis or comparative statics.

In dynamic economic analysis, the parameters of the economy are allowed to change, while in static analysis, the parameters are taken as given.

A rectangular hyperbola

Necessities, comforts, and luxuries

Necessities

Because they are purchased by people with higher incomes, so the demand does not change much with a change in price.

Commodities with few and poor substitutes, such as wheat and salt

The fewer substitutes a commodity has, the lower its price elasticity of demand will be.