Question

1. the diagram shows a production possibility curve. which point shows the most efficient allocation of resources? a) a b) b c) c d) d 20) what does the slope of the below production possibility curve measure? a) the amount of consumer goods that a society is willing to sell in order to produce more capital goods b) the maximum attainable combinations of consumer and capital goods c) the opportunity cost of producing an additional capital good in terms of consumer goods d) the maximum quantity of capital goods that can be produced for a given output of consumer goods 21) what does the shape of the production possibility curve mean? a) more milk has to be given up for each additional increase in the production of clothes b) more clothes have to be given up for additional increase in the production of meat c) opportunity cost of production of clothes in terms of milk is constant d) opportunity cost of production of milk in terms of clothes is decreasing

Explanation:

1. Points on the production - possibility curve (PPC) represent efficient allocation of resources. Point B is on the PPC, while A and D are inside it (inefficient) and C is outside (unattainable with current resources and technology).
2. The slope of the PPC measures the opportunity cost. It shows how much of one good (consumer goods) must be given up to produce an additional unit of the other good (capital goods).
3. The typical bowed - out shape of the PPC implies increasing opportunity cost. For example, as more of one good (like clothes) is produced, more of the other good (like milk) has to be given up.

Answer:

1. b) B
2. c) The opportunity cost of producing an additional capital good in terms of consumer goods
3. a) More milk has to be given up for each additional increase in the production of clothes