Unit 1 Review: Production Possibilities Curve & Basic Concepts

https://www.reviewecon.com/games-activities/production-possibilities#

What does the Production Possibilities Curve (PPC) illustrate in economics?

A model showing how an economy can allocate scarce resources between two goods, illustrating scarcity, trade-offs, opportunity costs, and efficiency.

Name the three key assumptions of the PPC model.

Only two goods can be produced; resources are fixed; technology is fixed.

What is opportunity cost?

The value of the next-best alternative forgone when a choice is made.

Differentiate between consumer goods and capital goods.

Consumer goods are final goods purchased by individuals; capital goods are goods that create future production (machines, factories, equipment).

What is the meaning of a point on the PPC, a point inside, and a point outside?

On the curve = efficient use of resources; inside = inefficient or unemployed resources; outside = unattainable with current resources/technology.

What does a straight-line PPC indicate about opportunity costs?

Constant opportunity cost; resources are easily adaptable for producing either good.

What does a bowed-out (concave) PPC indicate about opportunity costs?

Increasing opportunity costs; resources are not easily adaptable to producing both goods.

What are the three shifters of the PPC?

Change in resource quantity/quality, change in technology, change in trade.

What effect does an increase in population & education have on the PPC?

Shifts the PPC outward.

How does unemployment or underutilized resources appear on the PPC?

As a point inside the PPC, indicating inefficient use of resources.

What is the difference between price and cost in economics?

Price is the $ the consumer pays to buy the good. Cost is the $ the producer pays to produce the good.

Do countries that produce more capital or consumer goods have higher economic growth?

Countries that produce more capital goods.