What does a production possibility curve (PPC) show?
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B) The combination of goods an economy can produce with its resources. The PPC shows the maximum combination of goods an economy can produce given its resources and technology, not the total output, prices, or demand.
If an economy is producing at a point inside the PPC, what does this indicate?
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B) The economy is not using all its resources efficiently. A point inside the PPC indicates that the economy is not using all its resources efficiently, as it could produce more of at least one good without reducing the production of another.
What does a movement along the PPC indicate?
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B) A change in the combination of goods produced. A movement along the PPC indicates a change in the combination of goods produced, as resources are reallocated from one good to another.
What does a shift of the PPC to the right indicate?
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B) An increase in resources or technology. A shift of the PPC to the right indicates that the economy can produce more of both goods, which could be due to an increase in resources or technology.
What does a point beyond the PPC indicate?
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C) The economy is producing more than it is capable of. A point beyond the PPC is not possible with the current resources and technology, as it represents an output level that the economy cannot achieve.
If an economy moves from point A to point B on the PPC, what does this indicate?
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C) A change in the combination of goods produced. A movement from point A to point B on the PPC indicates a change in the combination of goods produced, as resources are reallocated from one good to another.
What does a shift of the PPC to the left indicate?
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B) A decrease in resources or technology. A shift of the PPC to the left indicates that the economy can produce less of both goods, which could be due to a decrease in resources or technology.
What does the shape of the PPC indicate?
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A) The opportunity cost of producing one good over another. The shape of the PPC indicates the opportunity cost of producing one good over another, as the curve becomes steeper as more of one good is produced.
If an economy is producing at point X on the PPC and wants to produce more of good Y, what must it do?
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C) Produce less of good Z. To produce more of good Y, the economy must produce less of good Z, as resources are reallocated from one good to another.
What does a straight-line PPC indicate?
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A) Constant opportunity cost. A straight-line PPC indicates constant opportunity cost, as the slope of the curve is the same at all points.
What does a bowed-out PPC indicate?
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B) Increasing opportunity cost. A bowed-out PPC indicates increasing opportunity cost, as the slope of the curve becomes steeper as more of one good is produced.
If an economy's PPC shifts to the right due to an increase in technology, what does this mean?
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B) The economy can produce more of both goods. A shift of the PPC to the right due to an increase in technology means that the economy can produce more of both goods with the same resources.
If an economy's PPC shifts to the left due to a decrease in resources, what does this mean?
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B) The economy can produce less of both goods. A shift of the PPC to the left due to a decrease in resources means that the economy can produce less of both goods with the same technology.
If an economy is producing at point A on the PPC and wants to move to point B, what must it do?
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C) Reallocate its resources from good X to good Y. To move from point A to point B on the PPC, the economy must reallocate its resources from good X to good Y, as it wants to produce more of good Y and less of good X.
What does the opportunity cost of producing one more unit of good X increase as more of good X is produced?
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B) Increasing opportunity cost. The opportunity cost of producing one more unit of good X increases as more of good X is produced, which is indicated by a bowed-out PPC.