Microeconomics 101- Module 3

1. True or false? Explain your answer. a. An increase in the amount of resources available to Boeing for use in producing Dreamliners and small jets does not change its production possibility curve.

False. An increase in the resources available to Boeing for use in producing Dreamliners and small jets changes the production possibility curve by shifting it outward. This is because Boeing can now produce more small jets and Dreamliners than before. In the accompanying figure, the line labeled "Boeing's original PPF" represents Boeing's original production possibility curve, and the line labeled "Boeing's new PPF represents the new production pos- sibility curve that results from an increase in resources available to Boeing

5. This production possibility curve shows the trade-off between consumer goods and capital goods. Since capital goods are a resource, an increase in the production of capital goods today will increase the economy's production possibilities in the future. Therefore, all other things being equal, producing at which point today will result in the largest outward shift of the PPF in the future? a. A b. B c. C d. D e. E

A

1. which point(s) on the graph represent efficiency in production? a. B and C b. A and D c. A, B, C, and D d. A, B, C, D, and E e. A, B, C, D, E, and F

C

2. For this economy, an increase in the quantity of capital goods produced without a corresponding decrease in the quantity of consumer goods produced a. cannot happen because there is always an opportunity cost. b. is represented by a movement from point E to point A. c. is represented by a movement from point C to point B. d. is represented by a movement from point E to point B. e. is only possible with an increase in resources or technology.

D

3. An increase in unemployment could be represented by a movement from point a. D to point C. b. B to point A. c. C to point F d. B to point E. e. E to point B.

D

4. Which of the following might allow this economy to move from point B to point F? a. more workers b. discovery of new resources c. building new factories d. technological advances e. all of the above

E

c. The production possibility frontier is useful because it The how much of one good an economy must give up to get more of another good regardless of whether resources are being used efficiently.

False. The production possibility frontier illustrates how much of one good an economy must give up to get more of another good only when resources are used efficientl in production. If an economy is producing inefficiently that is, inside the frontier--then it does not have to give up a unit of one good in order to get another unit of the other good. Instead, by becoming more efficient in production this economy can have more of both goods.

b. A technological change that allows Boeing build more small jets for any amount of Dreamliners built results in a change in its production possibility curve.

True. A technological change that allows Boeing to build more small jets for any amount of Dreamliners built results in change in its production possibility curve a This is illustrated in the accompanying figure: the new production possibility curve is represented by the line labeled "Boeing's new PPF," and the original production curve is represented by the line labeled "Boeing's original PPF." since the maximum quantity of Dreamliners that Boeing can build is the same as before, the new produc tion possibility curve intersects the vertical axis at the point as the original curve. But since the maximum possible quantity of small jets is now greater than before the new curve intersects the horizontal axis to the right of the original curve.