Production Possibility Curves 1

How does a production possibility curve show that scarcity exists?

• It shows that a rise in demand for one of the products increases its price.

• It shows that as more resources are used to produce a product, its price rises.

• It shows that at any point outside the production possibility curve an economy is wasting

  resources.

• It shows that there is a limit to the quantity of products that can be produced with existing resources and technology.

An economy produces different types of goods using its limited resources. This can be illustrated by a production possibility curve.

What does point X on the production possibility curve show?

• All resources are used for the production of consumer goods.

• More resources are allocated to producing capital goods than consumer goods.

• Resources are allocated to produce a mixture of consumer and capital goods.

• Total resources are not being fully utilised for production of these goods.

The diagram shows two production possibility curves for an economy.

What could have caused the change in the economy’s production possibility curve from XX

to YY?

• a decrease in the price level

• a large number of industrial disputes

• a major earthquake

• an increase in unemployment

The diagram shows a production possibility curve for an economy that can provide financial services or agricultural products. The economy is at point X.

Bad weather destroys part of the agricultural produce.

At which point will the economy be in the diagram?

• A

• B

• C

• D

The diagram shows a production possibility curve for an economy that can produce agricultural products or financial services. It is currently at point Q.

A crop disease decreases agricultural production but the financial services sector increases output as a result of an increase in demand.

To which point is the economy likely to move?

• A

• B

• C

• D

The diagram below shows a production possibility boundary for an economy that produces goods and services.

From the diagram it can be concluded that

• point X is productively efficient and point Y is allocatively

  efficient.

• point Y is productively efficient and point X is allocatively

  efficient.

• points X and Y are allocatively efficient.

• points X and Y are productively efficient.

The following diagram shows the production possibility frontier for an economy that produces bread and honey.

If the economy is initially at point W, then the opportunity cost of moving to point X is

• 6 units of honey.

• 8 units of honey.

• 12 units of bread.

• 23 units of bread.

The diagram below shows two production possibility boundaries for an economy.

The movement of the boundary from EE to FF is likely to have occurred because

• consumers have switched their preferences from textiles to computers.

• there has been an increase in productivity in the computer industry and a decrease in productivity in the textiles industry.

• the production of computers has become more profitable than the production of textiles.

• economic resources are being underused in the textiles industry.