PPF: Guns & Butter

The Production Possibilities Frontier shows the various combinations of output:

• consumers would like to consume

• producers would like to produce

• an economy can produce

• an economy should produce

Which point represents an underutilization of a country's resources?

• B

• C

• A & D

• E

If an economy is producing at a point of inefficiency within the curve... 

• It is not possible to produce more of either good without producing less of the other
• It is not possible to produce more of either good without more resources
• It is possible to produce more of both goods only if there is an improvement in technology
• It is possible to produce more of 1 or both goods without facing a tradeoff

Which of the following reasons might explain why an economy would be operating inside its production possibilities curve (PPC)?

• Because shrinking population has reduced the number of productive workers in the economy.
• Because technological innovations have increased the productivity of labor and capital.
• Because damage to natural resources, such as deforestation leading to erosion of topsoil, has shrunk the land resource.
• Because of unemployment of labor, perhaps due to discrimination against employing workers of a certain race or gender.

Combinations of goods outside the production-possibilities curve (PPC) have which of the following characteristics?

• They are the ideal place where the economy should be producing.
• They are not attainable given our existing stock of resources and technology.
•  They imply that some resources, such as labor, are unemployed or underemployed.
•  None of the above.

If an economy can produce various combinations of food and shelter along a production possibilities curve (PPC), then if we increase the production of shelter along the PPC, which of the following is true?

• We also increase the production of food.
• We must decrease the production of food. This foregone food production represents the opportunity cost of the increase in shelter.
• We cannot change the production of food.
• None of the above

True or False: Everything that is scarce requires a choice, and these choices always involve a tradeoff.

• True
• False

A production possibilities curve is drawn based on which of the following set of assumptions?

• Resources are fixed and fully employed, and technology advances at the rate of growth of the economy overall.
• Resources such as nonrenewable resources will decline, but labor remains fully employed, and technology is unchanged.
• Resources such as labor and capital will grow, are fully employed, and technology is unchanged.
• None of the above are correct

What does the difference in the curve of the PPC represent? 

• the straight line represents increasing opportunity cost between the production of corn & wheat
• the curved line represents constant opportunity cost between the production of cactus & pineapples
• both
• neither

Opportunity cost increases in the second graph as more resources are shifted from producing cactuses to producing pineapples because...

• similar resources are used to produce both goods
• the least efficient resources are shifted first
• the best-suited resources are shifted first
• the resources are equally appropriate for producing cactus or pineapples