4.1 The PPC Model

What is the production possibilities curve?

• a graph that shows the combinations of two goods an economy can produce with scarce resoruces

• the opportunity one has to give up in order to gain something else

• a model showing the way factors of production (land, labor, capital, entrepreneurs) become goods and services

How does a production possibility curve show that scarcity exists?

• It shows that a rise in demand for one of the products increases its price.

• It shows that as more resources are used to produce a product, its price rises.

• It shows that at any point outside the production possibility curve an economy is wasting

  resources.

• It shows that there is a limit to the quantity of products that can be produced with existing resources and technology.

The production possibilities curve is an illustration of what?

• Opportunity costs and trade-offs
• Only opportunity costs
• Only trade-offs
• none of the above

How are opportunity costs represented on the PPC model?

• The slope between two points showing how much of one you give up to gain more of the other

• The position of a point inside, on, or outside the line

• The shifting of the curve outwards (away from the origin) or inwards (towards the origin)

If a point lies on the curve this means the company/country/individual is being efficient. If a point lies inside the curve, what does that tell?

• They are being over efficient

• They are being inefficient

• It is not impossible with the given resources

• They are still efficient, just at another point

What does point Y represent on the PPC?

• Efficiency
• Unattainable / impossible
• Inefficency
• Nothing

What is the opportunity cost of moving from production point C to production point D?

• 3 power drills

• 4 power drills

• 1 ski

• 3 skis

If a natural disaster strikes, the production possibilities curve can shift

• No shift

• Inward (towards the origin)

• Outward (away from the origin)

• Outward, but on one axis only

What can cause a production possibilities curve to shift outwards?

• thousands of people move out of the country

• an epidemic kills thousands of young men and women

• a new invention lowers the cost of production

• the population is growing increasingly old and retiring

The law of increasing opportunity cost states that each additional increment of one good requires the economy to give up successively larger increments of the other good.

• True

• False