70 20 0 10 4070 0 00 Answer questions 1 through 5 in reference to the Production
ID: 1154023 • Letter: 7
Question
70 20 0 10 4070 0 00 Answer questions 1 through 5 in reference to the Production Possibilities Frontier (PPF) shown in Figure 1. Choose the best answer. Assume the economy only produces Trucks and loaves of Bread and the production alternatives are as presented in the figure 1. Which of the points A-E represent clearly inefficient choices A. Points A, B, and C B. Points D and E. C. Point C only D. Point A only E. Point E only Which of the points A-E represent efficient allocations of resources? A. Points D and E. B. Points B and C C. Point A only D. Point B only. E. Point C only If the economy were operating at the level of output represented by point A, how many more trucks could the economy produce without reducing the production of bread? 2. 3. 4. If the economy were operating at the level of output represented by point B, how many loaves of bread would the economy have to sacrifice in order to produce 20 more trucks? 5. Describe a change in conditions that could shift the PPF outward such that it passed through point E.Explanation / Answer
1. D) Point A only
Production possibility curve shows different combination of two goods which can be produced with the given resources on the assumptions that (i) resources are fully and efficiently utilized, and (ii) technique of production remains constant.
All combination of goods which lies under PPC represents inefficient because resources remains ideal.
2. B) Point B and C
All combination of goods which lie on PPC curve represents efficient combination of good because resources are fully utilised.
3. Economy can move from point A to B which shows economy can produce (80 - 40) = 40 more trucks keeping production of Bread constant.
4. Economy can move from point B to C by sacrificing 60 units of bread for 20 more trucks. As B (60 bread; 80 trucks) and C(0 bread; 100 trucks).
5. Growth in resources shifts PPF outwards.
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