1d – Production Possibilities
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1d - Must Know / Outcomes
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Construct a production possibilities curve (PPC) when given appropriate data; what is the
production possibilities curve (PPC) or production possibilities frontier (PPF)?; what does it
show?
What are the assumptions behind the PPC
Illustrate the following using the production possibilities curve: - we must make choices
- choices have opportunity costs
- the law of increasing costs
- the effect of unemployment
- the effect of productive inefficiency
- how present choices affect future possibilities
- the effect of international trade
- two types of "economic growth"
- it does NOT show the optimum product mix (allocative efficiency)
Explain WHY the PPC has the shape that it does -- concave to the origin. What is the law of
increasing cost? Why are there increasing costs? (Draw, Define. Describe all graphs)
What would the PPC look like if there were constant costs?
What does a point outside the PPC represent?
What two things (2 Es) would a point inside the PPC indicate?
Summarize the general relationship between investment and economic growth.
Describe the two types of economic growth ("achieving the potential" and "increasing the
potential") and explain how are they shown on a PPC?
What would cause a PPC to shift inward?
Use a PPC to illustrate the effect of international trade
1. A production possibilities curve
illustrates:
1.
2.
3.
4.
the necessity of making choices.
market prices.
consumer preferences.
the distribution of income.
1. A production possibilities curve
illustrates:
1.
2.
3.
4.
the necessity of making choices.
market prices.
consumer preferences.
the distribution of income.
2. The PPC shows:
1. The minimum amount that should
be produced
2. The minimum amount that can be
produced
3. The maximum amount that
should be produced
4. The maximum amount that can be
produced
2. The PPC shows:
1. The minimum amount that should
be produced
2. The minimum amount that can be
produced
3. The maximum amount that
should be produced
4. The maximum amount that can be
produced
3. Which of the following is NOT one
of the assumptions behind the PPC?
1.
2.
3.
4.
5.
6.
Fixed resources
Fixed technology
Productive efficiency
Allocative efficiency
Full employment
Only two goods
3. Which of the following is NOT one
of the assumptions behind the PPC?
1.
2.
3.
4.
5.
6.
Fixed resources
Fixed technology
Productive efficiency
Allocative efficiency
Full employment
Only two goods
4. What does point S represent?
1.
2.
3.
4.
unattainable
unemployment
economic growth
satisfaction
4. What does point S represent?
1.
2.
3.
4.
unattainable
unemployment
economic growth
satisfaction
With International Trade – “S” is possible
We will learn in lesson
2a that with
international trade ALL
countries can consume
quantities like point
“S”.
With trade, ALL
COUNTRIES can
consume more than
they can produce!
5. The combination of computers
and bicycles shown by point F:
1. is unattainable, given
currently available resources
and technology.
2. is attainable, but implies
productive inefficiency
3. is attainable, but implies
allocative inefficiency
4. is attainable, but implies full
employment
5. The combination of computers
and bicycles shown by point F:
1. is unattainable, given
currently available resources
and technology.
2. is attainable, but implies
productive inefficiency
3. is attainable, but implies
allocative inefficiency
4. is attainable, but implies full
employment
6. Refer to the diagram. This
economy will experience
unemployment if it produces at
1.
2.
3.
4.
5.
A.
B.
C.
D.
E.
6. Refer to the diagram. This
economy will experience
unemployment if it produces at
1.
2.
3.
4.
5.
A.
B.
C.
D.
E.
A Point INSIDE the PPC:
A point inside the PPC, like
point “D”, represents what
happens if there is
UNEMPLOYMENT or
PRODUCTIVE INEFFICIENCY.
The economy is not
producing the maximum
possible (points A, B, and C)
7. If all discrimination in the
United States were eliminated,
the economy would:
1. have a less concave production possibilities
curve.
2. produce at some point closer to its production
possibilities curve.
3. be able to produce at some point outside of its
production possibilities curve.
4. shift the production possibilities curve outward.
7. If all discrimination in the
United States were eliminated,
the economy would:
1. have a less concave production possibilities
curve.
2. produce at some point closer to its production
possibilities curve.
3. be able to produce at some point outside of its
production possibilities curve.
4. shift the production possibilities curve outward.
Reducing unemployment or reducing productive inefficiency
will move an economy from a point inside the curve to a point
closer to the curve.
8. What is the shape of the PPC?
1.
2.
3.
4.
convex
concave
concrete
confer
8. What is the shape of the PPC?
1.
2.
3.
4.
convex
concave
concrete
confer
9. What is the opportunity cost of the
first 20 rice?
1.
2.
3.
4.
80 wheat
78 wheat
70 wheat
2 wheat
9. What is the opportunity cost of the
first 20 rice?
1.
2.
3.
4.
80 wheat
78 wheat
70 wheat
2 wheat
10. If the production
possibilities curve is a
straight line:
1. the two products will sell at the same market
prices.
2. economic resources are perfectly substitutable
between the production of the two products.
3. the two products are equally important to
consumers.
4. equal quantities of the two products will be
produced at each possible point on the curve.
10. If the production
possibilities curve is a
straight line:
1. the two products will sell at the same market
prices.
2. economic resources are perfectly substitutable
between the production of the two products.
3. the two products are equally important to
consumers.
4. equal quantities of the two products will be
produced at each possible point on the curve.
11. Which combination is preferred
(optimal)?
1.
2.
3.
4.
78 wheat and 20 rice
70 wheat and 40 rice
55 wheat and 60 rice
We cannot tell
11. Which combination is preferred
(optimal)?
1.
2.
3.
4.
78 wheat and 20 rice
70 wheat and 40 rice
55 wheat and 60 rice
We cannot tell
12. Which of the following will not
produce an outward shift of the
production possibilities curve?
1. an upgrading of the quality of a nation's
human resources
2. the reduction of unemployment
3. an increase in the quantity of a society's labor
force
4. the improvement of a society's technological
knowledge
12. Which of the following will not
produce an outward shift of the
production possibilities curve?
1. an upgrading of the quality of a nation's
human resources
2. the reduction of unemployment
3. an increase in the quantity of a society's labor
force
4. the improvement of a society's technological
knowledge
TWO TYPES OF “ECONOMIC GROWTH”
Achieving the Potential
Reducing Unemployment or
Achieving Productive Efficiency
Increasing the Potential
Economic Growth
13. Refer to the
diagram. Other things
equal, this economy
will achieve the most
rapid rate of growth if:
1.
2.
3.
4.
it chooses point A.
it chooses point B.
it chooses point C.
it chooses point D.
13. Refer to the
diagram. Other things
equal, this economy
will achieve the most
rapid rate of growth if:
1.
2.
3.
4.
it chooses point A.
it chooses point B.
it chooses point C.
it chooses point D.
14. Refer to the production
possibilities curve. At the onset of
the Second World War the Soviet
Union was already at full
employment. Its economic
adjustment from peacetime to
wartime can best be described by
the movement from point:
1.
2.
3.
4.
c to point b.
b to point c.
a to point b.
c to point d.
14. Refer to the production
possibilities curve. At the onset of
the Second World War the Soviet
Union was already at full
employment. Its economic
adjustment from peacetime to
wartime can best be described by
the movement from point:
1.
2.
3.
4.
c to point b.
b to point c.
a to point b.
c to point d.
15. Refer to the production
possibilities curve. At the onset of
the Second World War the United
States had large amounts of idle
human and property resources.
Its economic adjustment from
peacetime to wartime can best be
described by the movement from
point:
1.
2.
3.
4.
c to point b.
b to point c.
a to point b.
c to point d.
15. Refer to the production
possibilities curve. At the onset of
the Second World War the United
States had large amounts of idle
human and property resources.
Its economic adjustment from
peacetime to wartime can best be
described by the movement from
point:
1.
2.
3.
4.
c to point b.
b to point c.
a to point b.
c to point d.