Question 1

Examine the Production Possibility Frontier schedule below showing the maximum output combinations of wool and computers for an economy and answer the question that follows.

Production Possibilities

Products

A

B

C

D

E

Wool ('000 bales)

100

90

70

40

0

Computers ('000)

0

100

200

300

400

What is the opportunity cost of increasing computer production from 200,000 to 300,000?

a)30,000 bales of wool

b)40,000 bales of wool

c)300,000 computers

d)100,000 computers

Question 2

Production Possibilities

Products

A

B

C

D

E

Wool ('000 bales)

100

90

70

40

0

Computers ('000)

0

100

200

300

400

Assume this economy currently produces 70,000 bales and 100,000 computers.What is the opportunity cost of increasing computer production to 200,000?

a)0, because the economy does not have sufficient resources to increase production of computers.

b)20,000 bales of wool, because the economy must move from possibility B to C.

c)70,000 bales of wool because the economy will have to give up wool production to produce 100,00 more computers.

d)0, because no quantity of wool is forgone or given up.

Question 3

Refer to the PPF schedule for Q1.Why does this economy have to give up or forgo more wool production to produce a greater quantity of computers?

a)Because this economy has increasing opportunity costs; the resources required to produce both products are not perfectly mobile or transferable.

b)Because this economy has increasing opportunity costs; the resources required to produce both products are perfectly mobile or transferable.

c)Because this economy has constant opportunity costs; the resources required to produce both products are perfectly mobile or transferable.

d)Because it is more expensive to produce computers than to produce wool.

Question 4

Refer to the PPF schedule for Q1.Assume the economy is currently operating on its PPF. If this economy decides to allocate more resources to the production of computers and less to the production of wool, how will this be shown on the PPF graph?

a)An outward shift of the PPF on the computer and wool axes.

b)An outward shift of the PPF on the computer axis and an inward shift on the wool axis.

c)The economy will move from a point on the PPF to a point inside the PPF on the wool axis.

d)An outward shift of the PPF on the computer axis.