Production Possibility Curves Exercises

Question One:
Imagine that country X could produce just two goods, food and clothing. Assume that
over a given time period it could produce any of the following combinations:
Units of clothing 0 1 2 3 4 !
Units of food 24 23 21 1" 14 " 0
1. Draw a production possibility curve for country X
. !hat is the opportunity cost of producing one more unit of clothing if the
current level of production is "i# units "ii# $ units "iii# % units.
$. Assume that technical innovation in agriculture allows a greater food output
per unit of resources devoted to agriculture. !hat effect will this have on the
opportunity cost of producing clothes&
%. 'ow assume that there is a drought that halves the amount of food that can be
produced per unit of resources. Draw the new production possibility curve.
Question #$o:
(ig 1 shows a production possibility curve for a country that can produce various
combinations of two goods ) and y.
!hich point is the following&
"a# *fficient
"b# Inefficient
"c# +omplete specialisation
"d# ,nobtainable
Question #hree:
(ig -roduction is currently at point A.
.he opportunity cost of producing one
more unit of good ) is:
"a# 1/ units of )
"b# 1 unit of )
"c# 0 units of y
"d# 1 units of y
(I2 3'*
"e# units of y
Question #hree
A production possibility curve is typically drawn bowed outward from the origin. .his
illustrates&
Question %our
(ig $ shows a country4s ppcs for years. .he
prod. -oint shifts outward from point A in
// to point 5 in //$. .he following are
possible things that might have happened:
"i# -otential output has increased
"ii# Actual output has increased
"iii# A fuller use has been made of
resources.
!hich is correct&
A "i#, "ii# and "iii#
5 "i# and "ii# but not "iii#
+ "ii# and "iii# but not "i#
D "ii#, but not "i# or "ii#
* It is impossible to say from the information given.
Question %ive
!hich of the following would directly lead to an outward shift of a country4s production
possibility curve&
&' An increase in the population of wor6ing age.
(' A reduction in the level of unemployment in the encomy
C' A reduction in value added ta) and duties on petrol and alcohol.
)' An increase in the general level of prices.
E' A reduction in government e)penditure on education.
Question *ix
A ppc can illustrate the distinction between microeconomics and macroeconomics.
!hich is which below&
"a# !hether the ppc shifts outwards over time.
"b# !hether the economy is operating on the ppc or inside it.
"c# .he choice whether to produce more X and less 7, or more 7 and less X "i.e#
where to produce on the ppc.
8A9:;<**.
Production Possibility Curves
Question One:
Imagine that country X could produce just two goods, food and clothing. Assume that
over a given time period it cvould produce any of the following combinations:
Units of clothing 0 1 2 3 4 !
Units of food 24 23 21 1" 14 " 0
=. Draw a production possibility curve for country X
1. !hat is the opportunity cost of producing one more unit of clothing if the
current level of production is "i# units $ "ii# $ units % "iii# % 1 units.
>. Assume that technical innovation in agriculture allows a greater food output
per unit of resources devoted to agriculture. !hat effect will this have on the
opportunity cost of producing clothes&
0. 'ow assume that there is a drought that halves the amount of food that can be
produced per unit of resources. Draw the new production possibility curve.
! +,r-s
Question #$o:
4 +,r-s
(ig 1 shows a production possibility curve for a country that can produce various
combinations of two goods ) and y.
!hich point is the following&
"e# *fficient all points on the curve
"f# Inefficient all points within the curve
"g# +omplete specialisation A or 2
"h# ,nobtainable outside the curve.
Question #hree:
(ig -roduction is currently at point A.
.he opportunity cost of producing one
more unit of good ) is:
(I2 3'*
"f# 1/ units of )
"g# 1 unit of )
"h# 0 units of y
"i# 1 units of y
"j# 2 units of y .1 +,r-/
.-/ Question #hree
A production possibility curve is typically drawn bowed outward from the origin. .his
illustrates& <ow resources are not e?ually suitable " mar6s#
Question %our
(ig $ shows a country4s ppcs for years. .he
prod. -oint shifts outward from point A in
/// to point 5 in //$. .he following are
possible things that might have happened:
.iv/ Potenti,l out0ut h,s incre,sed
.v/ &ctu,l out0ut h,s incre,sed
"vi# A fuller use has been made of
resources.
!hich is correct&

A "i#, "ii# and "iii#
5 "i# and "ii# but not "iii#
+ "ii# and "iii# but not "i# "1 mar6#
D "ii#, but not "i# or "ii#
* It is impossible to say from the information given.
Question %ive
!hich of the following would directly lead to an outward shift of a country4s production
possibility curve&
%' &n incre,se in the 0o0ul,tion of $or-ing ,ge' 1,cro .1 +,r-/
2' A reduction in the level of unemployment in the economy macro
3' A reduction in value added ta) and duties on petrol and alcohol. micro
4' An increase in the general level of prices. macro
5' A reduction in government e)penditure on education. micro
Question *ix
A ppc can illustrate the distinction between microeconomics and macroeconomics.
!hich is which below&
"a# !hether the ppc shifts outwards over time. 8acro " mar6s#
"b# !hether the economy is operating on the ppc or inside it. macro
"c# .he choice whether to produce more X and less 7, or more 7 and less X "i.e#
where to produce on the ppc. 8icro #O#&6 14 +,r-s