Frequent Exam Questions with Answers
The PPF
Chapter 2 ― Question 3
Explain
- why the PPF illustrates the notion of opportunity costs
- why an outward-bowed PPF illustrates diminishing returns
- why a linear PPF illustrates constant opportunity costs
- how the PPF illustrates growth.
*1) The PPF shows what you must give up on the x-axis to receive more on the y-axis and vice versa.
*2) The PPF is normally outward-bowed because of the law of diminishing returns. You must give up ever more on the x-axis and receive ever smaller increases on the y-axis and vice versa.
*3) If the PPF is linear, the number of units you give up on the x-axis equals the number of units you receive on the y-axis and vice versa.
*4) Growth is illustrated by a shift of the PPF to the right.
Chapter 2 ― Question 4
Which of the following developments is most likely to cause an inward shift of the PPF:
- a natural disaster
- a decline in capital
- competition from abroad
- an improved technology
*B. The quantity of resources devoted to the production of the two goods declines. C is correct only if it leads to a decline in the resources devoted to the two goods. A could be correct if the PPF illustrates a trade-off involving one or two agricultural commodities. D causes an outward shift.
Chapter 2 ― Question 5
If it is possible to increase the output of both butter and guns, which of the following statements about the economy is true
- the economy is inefficient and inside the PPF
- the economy is efficient and outside the PPF
- the economy is efficient and on the PPF
- the economy is inefficient and on the PPF
*A. Answers B and D are by definition impossible. Efficiency and being on the PPF are synonymous.
Chapter 2 ― Question 6
A PPF can illustrate the trade-off between leisure and grades. If you put leisure on the x-axis and grades on the y-axis, in how far does the PPF resemble the butter-gun PPF? Where is it different?
* The similarity is that you must sacrifice ever more leisure to improve your grades. This is so because your concentration declines as you increase hours of studying.
The difference is on the y-axis. While the distance between 3m and 4m pounds of butter and the distance between 5m and 6m are equal, the distance between a B and an A is usually larger than the distance between a C and a B. For an excellent grade, instructors want to see excellence. This makes the shape of the grade-leisure PPF different from the gun-butter PPF and is another reason why you must sacrifice ever more leisure to improve your grade.
Chapter 11 ― Question 10
What magnitudes are indicated on the x-axis and the y-axis of the following curves:
- the PPF
- the production function
- the isoquant curve
*1) two goods on the axes
*2) number of workers on the x-axis, output on the y-axis
*3) two factors on the axes
If you like, print this page for offline comparison or studying.