Question

The PPF model is used to illustrate / explain

A the idea of economic or technological growth.

B the idea of efficiency vs. inefficiency.

C the idea of diminishing returns.

D All of these.

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

A	It is not possible to produce more of one good at any cost.

B	All consumers have their basic needs satisfied.

C	Total production has been maximized

D	There is no way to produce more of one good without producing less of another.

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

A None of the above

B How far out the PPF line is

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?

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

B How far out the PPF line is

C None of the above D The slope of the PPF line

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

A	A point beyond the line.

B	A point on the extreme left or extreme right of the line.

C	A point interior to the line.

D	All of these. E None of these

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,

A	The opportunity cost of tangible goods goes up.

B	The opportunity cost of the two goods does not change.

C	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.

Scenario		Native		Newbies
1		8		6
2		10		7
3		12		6
4		13		3
5		11		1
6		10		0

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?

A	If it isn't possible to travel any further to the north (up) then we'vereached the most efficient outcome.

B	If it isn't possible to travel any further to the east (right) thenwe've reached the most efficient outcome.

C	When the PPF is downward sloping, we would have to impose losses on onegroup to generate gains for the other; therefore it can't be efficientto stay on a portion of the PPF that is downward sloping.

D	When the PPF is upward sloping, we're able to increase income for both groups at the same time. So it can't be efficient to stay on a portion of the PPF that is upward sloping.

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	Natives	Newbies
1	8	6
2	10	7
3	12	6
4	12	3
5	11	1

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.

A

2; 1

B

1; 2

C

3; 2

D

3; 1

Answer 1

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.