The PPF model is used to illustrate / explain In the PPF model, if the economy i

Question

The PPF model is used to illustrate / explain

In the PPF model, if the economy is producing efficiently,

Which element of the PPF gives information about the opportunity cost of producing more of a good?

C The slope of the PPF line

D How far to the left or right we are on the PPF line

Which of the following best shows an economy’s total productive capacity in the PPF?

C None of the above

D The slope of the PPF line

In the PPF model, which of the following is productively inefficient?

Consider a PPF which illustrates the trade-off between tangible goods and intangible services.

If technological improvements raise productivity in the tangible good sector but not in the intangible service sector,

The opportunity cost of intangible services goes up.

D The opportunity cost of the tangible goods goes down but the opportunitycost of the intangible services doesn't change.

Suppose that different ways of organizing a society produce different levels of income for two different groups of citizens, natives and newbies. Both groups are equal in size.

Set up a PPF diagram with the income of the natives on the horizontal axis, the income of the newbies on the vertical axis. Treat each scenario as a point on the PPF and graph the PPF. You should end up with a strange looking PPF.

Think about the last question, where you identified the efficient scenario(s). Which of the following statements correctly connects the last question to the PPF you just drew?

Suppose that different ways of organizing a society produce different levels of income for two different groups of citizens, natives and newbies. Both groups are equal in size.

Scenario ________ is likely to be most appealing to someone who is interested in minimizing poverty. Scenario _________ is likely to be most appealing to someone who is interested in minimizing inequality.

Explanation / Answer

Q.1 D. All of these. PPF represents the various combinations of goods which can produced efficiently with the given resources. If one good is produced, then the other good will be reduced. More of good A ( on Y axis) should be given up as good B ( on X axis) is produced. Therefore, PPF represents diminishing returns.

Q2.D. If resources are used efficiently, it means that production of one good cannot be made without decreasing the production of another good.

Q3. C. The slope of the PPF curve gives the opportunity cost.

Q4. C. None of the above. Efficiency is attained at any point on the PPF.

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