The economic problem – Flashcards
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The production possibilities frontier illustrates the
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maximum combinations of goods and services that can be produced
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When drawing a production possibilities frontier, which of the following is held constant?
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the available factors of production and the state of technology
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The production possibilities frontier is the boundary between the
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attainable and unattainable combinations of goods and services.
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The table above gives four production possibilities for airplanes and cruise ships. In possibility A,
how many resources are devoted to the production of airplanes?
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all
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Moving from one point to another on a production possibilities frontier implies
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increasing the production of one good and decreasing the production of another.
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A major earthquake occurs in the central part of the United States. What impact would this have
on the nation's production possibilities frontier and why?
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It would shift inward because some of the nation's resources, such as capital and labor,
would be destroyed.
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In a production possibilities frontier diagram, the attainable production points are shown as
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the points inside and the points on the production possibilities frontier.
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In the production possibilities frontier model, an unattainable point lies
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only outside the production possibilities frontier.
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Production efficiency occurs
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at all points on the production possibilities frontier.
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If a society moves from a period of time with significant unemployment to a time with full
employment, its production possibilities frontier will
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not shift because the society moves from a point inside the frontier to a point on the frontier
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The figure above shows the production possibilities frontier for a country. A combination of 3
million gallons of milk and 3 million gallons of ice cream is
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attainable and production efficient.
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The negative slope of the production possibilities frontier represents the idea
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of tradeoffs, that in order to produce more of one good, the nation must produce less of
another
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A free lunch (the absence of a tradeoff) when the production of a good is increased is possible for
the entire economy only if
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resources are used inefficiently.
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Moving along the production possibilities frontier itself illustrates
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the existence of tradeoffs
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The opportunity cost of producing one more unit of a good is calculated by dividing the
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decrease in the quantity of the other good by the increase in the quantity of the good whose
opportunity cost we're calculating.
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On a production possibilities frontier, 500 pounds of apples and 1,200 pounds of bananas can be
produced while at another point on the same frontier, 300 pounds of apples and 1,300 pounds of
bananas can be produced. Between these points, what is the opportunity cost of producing a
pound of bananas
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2 pounds of apples
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A country produces only apples and bananas. Moving from point A to point B along its production
possibilities frontier, 5 apples are gained and 4 bananas are forgone. What is the opportunity cost
of an apple?
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4/5 of a banana
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The bowed out (concave) shape of the production possibilities curve implies that as production of
one good
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increases, society must forgo increasing amounts of another good.
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As an economy increasingly specializes in producing one good, the opportunity cost of that good
increases. The opportunity cost increases because
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resources are not equally productive in all activities
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Which of the following is the best definition of economic growth?
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The sustained expansion of production possibilities.
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As an economy grows,
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its PPF shifts outward.
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A country has a comparative advantage in the production of a good if it can
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produce the good at the lowest opportunity cost
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What is gained when people engage in specialization and trade?
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Specialization and trade allow people to consume outside their individual production
possibilities frontiers
