1. [Multiple choice questions (5 points each, 35 points in total)] Answer 1.1-13

Question

1. [Multiple choice questions (5 points each, 35 points in total)] Answer 1.1-13 based on the following PP 1.5 Which of the following statements is tue for sure about the PPF below? (a) Point A is efficient (b) Point B is efficient. (c)Point Cis inefficient (d) Point D ean be produced under a certain pattem of resource allocation. (e None of the above 500 1000 1.1 The relative price of good X (in tems of good Px Py, is (a) 2 (c) 500 (d) 1000 16 Panel A shows a PPF for two goods Xand Y. Which of the following is the reason why the PPF is convex? (a) The country is facing scareity (b) The country is in a recession (c) The marginal productivity of labor is not 1.2 The relative price of good Y (in terms of goodX) Py Px, is (a) 2 diminishi ng in eter industry. (d) The marginal productivity of labor is (c) 500 (d) 1000 diminishi ng in at least one industry (e None of the above 1.3 If the relative price of Y were to increase, then the price line would 1.7 Panel B showsanother PPF. Which of the following (a) shift out in a parallel fashion. (b) shift in a parallel fashion (c become steeper. (d) become flatter is the reason true for sure? (a) The country is facing scareity (b) The country is in a recession (cBoth industries have the constant marginal product labor (not diminishing). (d) None of the above 1.4 In autarky (ie., closed economy) when a country maximizes its production, its production point is Panel A Panel B (a) below the production possibility frontier (b) on the production possibility frontier (c) above the production possibility frontier (d) cannot tel ihut more information

Explanation / Answer

1.1) the correct option is b) 1/2.

px/py = 500/ 1000 = 1/2

1.2) the correct option is a) 2

py/px = 1000/500 = 2

1.3) the correct option is become flatter. Slope = Px/Py. Since the Slope decreases, the line becomes flatter.

1.4) the correct option is b) on the production possibility Frontier. Efficient points are plotted on PPF.

1.5) the correct option is b) point B is efficient. The points which lie on the PPF are efficient. Points inside the PPF are inefficient and the points that lie outside the PPF are unattainable.

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