1a. You are stranded on an island in the South Pacific. You have decided to clim
ID: 1145515 • Letter: 1
Question
1a.
You are stranded on an island in the South Pacific. You have decided to climb the palm trees to harvest coconuts. You have decided which basic economic questions?
What to produce?
How to produce it?
For whom is it produced?
How to fairly tax the production?
A. I only
B. I and II only
C. IV only
D. III and IV only
1b. The best explanation for the bowed out shape of the PPF is:
A. there is a constant trade-off between the two goods as the output of one good is increased.
B. as more and more resources are shifted into making the second good, the opportunity cost in terms of the first good become smaller and smaller.
C. the Law of Diminishing Marginal Returns causes attempts to expand production of the second good result in larger and larger sacrifices of the first good.
D. as people consume more of one good, they desire the second good more and more.
E. people only desire the products that they are unlikely to be able to afford.
Figure 1 Guns ButterExplanation / Answer
Answer : 1a) I will decide to choose the option B.
What to produce and how to produce the decided product are two basic economic questions of production. Because firstly it is important to decide which product should be produced and this is totally based on the demand for products and then to decide how much scarce resources should be allocated for production.
1b) Option B is correct.
Bowed PPF curve show the increasing opportunity cost for one product and decreasing for others. According to the given diagram, the equilibrium point is A where resources are shifted to the production of second good. As a result the opportunity cost is smaller for the first good.
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