KA: Opportunity cost and the PPC
Which of the following concepts can be modeled using a PPC?
A society can produce more of any good just by reallocating its resources more efficiently **When all resources are being used, making more of one good means making less of the other good.
The graph here shows the production possibilities of two goods, R and S. How does the opportunity cost of Good R change as output of S increases?
It decreases. **To produce the first unit of Good S, about 4 units of Good R are given up. For the second unit of Good S only about 2 units of Good R are given up. Going from 9 to 10 units of Good S costs almost no units of Good R. This illustrates decreasing opportunity costs, as illustrated by a PPC bowed inward toward the origin.
All of the following are part of the opportunity costs of going to college EXCEPT
Money spent on clothes **You don't need to go to college to spend money on clothes. You need clothes regardless.
Which of the following statements best captures the tradeoff between capital goods and consumption goods in economic growth?
Society's best strategy for promoting wellbeing is to allocate as many resources toward capital goods as possible today. **A society must balance the need for current consumption with the ability to consume more in the future.
Alex can split his time doing chores between only two activities: folding laundry and cooking meals. His production possibilities curve is shown here. A PPC with points illustrating different combinations of production Based on Alex's PPC, which of the following statements best describes what we can say about how he should split his time?
We cannot tell how he should split his time. **The production possibilities curve only shows what can be produced, not what should be produced. That would depend on Alex's preferences.
The graph below shows the PPC for a country producing ice cream and frozen yogurt. A production possibilities curve What statement explains why the PPC for ice cream and frozen yogurt is a straight line instead of a curve?
The shape of the PPC signifies that the resources needed to produce the two goods are interchangeable **The same resources are needed to produce the two goods, so the opportunity cost is constant as output of each good increases. This makes the PPC a straight line.
A production possibilities curve The PPC shown is bowed out from the origin. What does the shape of this PPC indicate about how opportunity cost changes as more of one good is produced?
Increasing opportunity cost (Curve)
The graph below represents a change in the production possibilities of the nation of Xam. Xam's production possibilities Which of the following statements about the economic growth in this PPC are true?
Xam now has more resources or technology available to produce more fast cars, but not fruit smoothies. **If the country devotes all of its resources to making fast cars, it can make more fast cars, but if it devotes all of its resource to making smoothies the amount they can make hasn't changed, which means only the resources or technology for making cars have increased.
