41) The production possibility curve can be used to show all of the following except:
A) price
B) scarcity
C) choice
D) opportunity cost
42) The case of a free lunch exists when:
A) people are on welfare and fail to seek employment
B) the economy is operating on its production possibility curve
C) the economy obtains additional resources to enable it to achieve a combination that was previously unavailable
D) additional output can be produced without sacrificing the production of any other good or service
43) A production possibility diagram can be used to show:
A) opportunity cost
B) economic growth
C) resource utilization
D) all of the above
44) Which of the following would result in an outward shift of the economy’s production possibility curve?
A) Workers who were previously unemployed are hired
B) New immigrants enter the country but are currently unemployed
C) The economy increases its food production by shifting resources away from the production of machines
D) The economy puts idle resources to work
45) Which of the following will not shift an economy’s production possibility curve?
A) The employment of previously idle resources
B) The hiring of workers from other countries
C) The discovery of new resources
D) An improvement in technology
46) Which of the following will affect the position of the p-p curve?
A) New immigrants enter the country but cannot find jobs
B) Households increase their purchases of consumer goods and services
C) All firms hire workers who were previously unemployed
D) An increase in demand causes firms to increase their production levels
47) Suppose Canada produces relatively more capital goods and relatively fewer consumer goods, while Australia produces relatively more consumer goods and relatively fewer capital goods. Other things being equal:
A) Canada’s production possibility curve will shift out more quickly than Australia’s
B) Australia’s production possibility curve will shift out more quickly that Canada’s
C) it is impossible to tell which country’s production possibility curve will shift out more quickly
D) neither country’s production possibility curve will shift outward
48) Assume a concave production possibilities curve with a consumer good on the y-axis and a capital good on the x-axis. An improvement in technology used in the capital goods industry will cause the pp-curve to:
A) shift out parallel to itself
B) shift in parallel to itself
C) pivot out around the y-intercept
D) pivot out around the x-intercept
49) If existing land is brought into cultivation, the economy’s production possibility curve will:
A) shift outward
B) shift towards the origin
C) not be affected
D) become concave instead of linear
50) On a production possibilities curve with consumer goods on the y-axis and capital goods on the x-axis, the decision to produce more capital goods than consumer goods will:
A) shift the pp-curve around the y-axis
B) shift the pp-curve around the x-axis
C) shift the pp-curve out parallel to itself
D) cause a movement along the original pp-curve, in the direction of the capital goods
The Correct Answer and Explanation is :
Here are the correct answers with explanations for each question:
41) The production possibility curve can be used to show all of the following except:
- A) price
The production possibility curve (PPC) illustrates the trade-offs between the production of two goods, showing scarcity, choice, and opportunity cost. It does not directly illustrate price. Price is determined in markets, not by the PPC.
42) The case of a free lunch exists when:
- D) additional output can be produced without sacrificing the production of any other good or service
A “free lunch” refers to a situation where more of one good can be produced without having to sacrifice the production of another good. This happens when resources are underutilized or when technology improves, allowing for more output with no extra cost.
43) A production possibility diagram can be used to show:
- D) all of the above
The PPC can illustrate opportunity cost (what you give up when you produce one good over another), economic growth (shifts in the curve), and resource utilization (how efficiently resources are being used to produce goods).
44) Which of the following would result in an outward shift of the economy’s production possibility curve?
- A) Workers who were previously unemployed are hired
An outward shift in the PPC means the economy’s productive capacity has increased, which can happen when previously unemployed workers are hired, increasing the total output potential.
45) Which of the following will not shift an economy’s production possibility curve?
- A) The employment of previously idle resources
Using previously idle resources does not change the economy’s production capacity; it merely moves the economy along the existing PPC. New resources, technological improvements, and discoveries can shift the curve outward.
46) Which of the following will affect the position of the p-p curve?
- C) All firms hire workers who were previously unemployed
Hiring previously unemployed workers can increase the economy’s output, shifting the production possibility curve outward. The other options describe movements along the curve or changes that do not shift the curve itself.
47) Suppose Canada produces relatively more capital goods and relatively fewer consumer goods, while Australia produces relatively more consumer goods and relatively fewer capital goods. Other things being equal:
- C) it is impossible to tell which country’s production possibility curve will shift out more quickly
The speed at which the PPC shifts outward depends on various factors like technological advancement, resource availability, and productivity improvements, which are not provided in the question. Thus, it is not possible to tell definitively which country’s PPC will shift more quickly.
48) Assume a concave production possibilities curve with a consumer good on the y-axis and a capital good on the x-axis. An improvement in technology used in the capital goods industry will cause the pp-curve to:
- D) pivot out around the x-intercept
Improvement in technology for capital goods would make the economy more efficient in producing capital goods, causing the PPC to pivot outward from the x-axis (capital goods axis), reflecting a higher capacity to produce capital goods without affecting the consumer goods production.
49) If existing land is brought into cultivation, the economy’s production possibility curve will:
- A) shift outward
Bringing land into cultivation increases the economy’s available resources, leading to an outward shift in the PPC. This signifies that the economy can produce more goods and services than before.
50) On a production possibilities curve with consumer goods on the y-axis and capital goods on the x-axis, the decision to produce more capital goods than consumer goods will:
- D) cause a movement along the original pp-curve, in the direction of the capital goods
Producing more capital goods than consumer goods involves a movement along the curve from one point to another, reflecting the trade-off between the two types of goods. This does not shift the curve itself, it simply moves along it.