Section 2

efficient

an economy is efficient if there is no way to make anyone better off without making at least one person worse off.

technology

the technical means for producing goods and services.

trade-off

when you give up something in order to have something else.

This production possibilities 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 equal (ceteris paribus), producing at which point today will result in the largest outward shift of the PPC in the future? a. A b. B c. C d. D e. E

a

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

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

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

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

opportunity cost

everything else in addition to money that must be given up to receive that good.

production possibilities

illustrates the trade-offs facing an economy that produces only two goods. It shows the maximum quantity of one good that can be produced for each possible quantity of the other good produced.