Production Possibilities Curve MCQ Quiz Questions And Answers

1.

Which of the following points is not attainable under the current situation?

A

D

F

E

Point E is the unattainable point. Production possibilities curves (PPCs) depict the maximum achievable output combinations for two goods, given limited resources. Points that fall outside the curve, like point E, represent scenarios that are impossible to achieve with the current resource constraints.

Explanation

Point E is the unattainable point. Production possibilities curves (PPCs) depict the maximum achievable output combinations for two goods, given limited resources. Points that fall outside the curve, like point E, represent scenarios that are impossible to achieve with the current resource constraints.

2.

Which point represents underutilization?

B

C

A and D

E

Point C represents underutilization because it is below the production possibilities curve, indicating that resources are not being fully utilized to produce goods and services.

Explanation

Point C represents underutilization because it is below the production possibilities curve, indicating that resources are not being fully utilized to produce goods and services.

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

We also increase the production of food.

We cannot change the production of food.

None of the above.

If an economy can produce various combinations of food and shelter along a production possibilities curve (PPC), then increasing the production of housing along the PPC will result in a decrease in the production of food. This is because resources are limited, and allocating more resources to housing means there are fewer resources available for food production. The decrease in food production represents the opportunity cost of increasing shelter production, as the economy has to give up the production of food to produce more shelter.

Explanation

If an economy can produce various combinations of food and shelter along a production possibilities curve (PPC), then increasing the production of housing along the PPC will result in a decrease in the production of food. This is because resources are limited, and allocating more resources to housing means there are fewer resources available for food production. The decrease in food production represents the opportunity cost of increasing shelter production, as the economy has to give up the production of food to produce more shelter.

4. Which of the following characteristics do the combinations of goods outside the production possibilities curve (PPC) have?

They are only attainable today if we employ all unemployed or underemployed resources.

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.

The correct answer suggests that combinations of goods outside the production possibilities curve (PPC) are not attainable with the current stock of resources and technology. This means that the economy is not able to produce these combinations of goods efficiently or effectively. It implies that there is a limit to the production capacity and that the economy would need to improve its resources and technology in order to reach these combinations.

Explanation

The correct answer suggests that combinations of goods outside the production possibilities curve (PPC) are not attainable with the current stock of resources and technology. This means that the economy is not able to produce these combinations of goods efficiently or effectively. It implies that there is a limit to the production capacity and that the economy would need to improve its resources and technology in order to reach these combinations.

5. Which of the following best describes the three fundamental economic questions?

What to produce, when to produce, and where to produce

What time to produce, what place to produce, and how to produce

What to produce, when to produce, and for whom to produce

What to produce, how to produce, and for whom to produce

The three fundamental economic questions are concerned with the allocation of resources in an economy. "What to produce" refers to the decision of which goods and services should be produced based on consumer demand and resource availability. "How to produce" refers to the choice of production methods and techniques to use in order to efficiently produce the selected goods and services. "For whom to produce" refers to the decision of how the produced goods and services should be distributed among the members of society, taking into consideration factors such as income, wealth, and need.

Explanation

The three fundamental economic questions are concerned with the allocation of resources in an economy. "What to produce" refers to the decision of which goods and services should be produced based on consumer demand and resource availability. "How to produce" refers to the choice of production methods and techniques to use in order to efficiently produce the selected goods and services. "For whom to produce" refers to the decision of how the produced goods and services should be distributed among the members of society, taking into consideration factors such as income, wealth, and need.

6. A production possibilities curve shows the various combinations of the output of ___________

What consumers would like to consume?

What producers would like to produce?

What an economy can produce?

What should an economy produce?

A production possibilities curve shows the various combinations of the output that an economy can produce. It represents the maximum amount of goods and services that can be produced given the available resources and technology. The curve illustrates the trade-offs that an economy faces when allocating its resources between different goods and services. It helps to determine the efficiency and productive capacity of an economy by showing the possible combinations of production.

Explanation

A production possibilities curve shows the various combinations of the output that an economy can produce. It represents the maximum amount of goods and services that can be produced given the available resources and technology. The curve illustrates the trade-offs that an economy faces when allocating its resources between different goods and services. It helps to determine the efficiency and productive capacity of an economy by showing the possible combinations of production.

7. Opportunity cost represents the worst of the various alternatives that must be given up when a choice is made in the context of scarcity.

True

False

The statement is incorrect. Opportunity cost represents the value of the next best alternative that is forgone when a choice is made. It is not necessarily the worst alternative, but rather the value of the alternative that is sacrificed.

Explanation

The statement is incorrect. Opportunity cost represents the value of the next best alternative that is forgone when a choice is made. It is not necessarily the worst alternative, but rather the value of the alternative that is sacrificed.

8. Suppose that the alternative uses of an hour of your time in the evening, ranked from best to worst, are (i) studying economics, (ii) watching two half-hour TV sitcoms, (iii) playing pool, and (iv) jogging around the town. You can only choose one activity. What is the opportunity cost of studying economics for one hour, given this information?

Jogging around town.

Watching two half-hour TV sitcoms.

Playing pool.

The sum of watching two half-hour TV sitcoms, playing pool, and doing your laundry.

The opportunity cost of studying economics for one hour is the value of the next best alternative that is forgone, which is watching two half-hour TV sitcoms. This means that by choosing to study economics, you are giving up the enjoyment and entertainment of watching the sitcoms. The other options listed, such as jogging around town, playing pool, and doing laundry, are ranked lower in terms of preference and therefore have a lower opportunity cost compared to watching the sitcoms.

Explanation

The opportunity cost of studying economics for one hour is the value of the next best alternative that is forgone, which is watching two half-hour TV sitcoms. This means that by choosing to study economics, you are giving up the enjoyment and entertainment of watching the sitcoms. The other options listed, such as jogging around town, playing pool, and doing laundry, are ranked lower in terms of preference and therefore have a lower opportunity cost compared to watching the sitcoms.

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

Because the shrinking population has reduced the number of productive workers in the economy.

Because technological innovations have increased the productivity of labor and capital.

Because of unemployment or underemployment of labor, perhaps due to discrimination against employing workers of a certain race or gender.

An economy operating inside its production possibilities curve (PPC) indicates that it is not utilizing all of its available resources efficiently. The given answer suggests that the reason for this could be unemployment or underemployment of labor, potentially due to discrimination against certain races or genders. This means that there are workers who are capable and willing to work but are not being given the opportunity, leading to a suboptimal use of resources and a lower level of output than what could be achieved.

Explanation

An economy operating inside its production possibilities curve (PPC) indicates that it is not utilizing all of its available resources efficiently. The given answer suggests that the reason for this could be unemployment or underemployment of labor, potentially due to discrimination against certain races or genders. This means that there are workers who are capable and willing to work but are not being given the opportunity, leading to a suboptimal use of resources and a lower level of output than what could be achieved.

10. What does a point inside the Production Possibilities Curve (PPC) represent?

Efficient use of resources

Inefficient use of resources

Unattainable production level

Maximum possible output

A point inside the Production Possibilities Curve (PPC) represents the inefficient use of resources, meaning that the economy or entity is not producing at its full potential. It indicates that resources such as labor, capital, and technology are underutilized. Points on the curve represent maximum efficiency, while points outside the curve (C) are unattainable with current resources. Points inside the curve suggest that there is room to improve production without needing additional resources.

Explanation

A point inside the Production Possibilities Curve (PPC) represents the inefficient use of resources, meaning that the economy or entity is not producing at its full potential. It indicates that resources such as labor, capital, and technology are underutilized. Points on the curve represent maximum efficiency, while points outside the curve (C) are unattainable with current resources. Points inside the curve suggest that there is room to improve production without needing additional resources.