4.1.1.5 Production possibility diagrams Quiz: AQA Economics, Unit 1

The 20 questions

1. On a production possibility diagram, a point lying inside the production possibility frontier indicates:

   • unemployment or underutilisation of resources.
   • a combination that cannot be produced with current resources.
   • economic growth that has just occurred.
   • an efficient use of all resources.

2. A point outside the production possibility frontier is best described as:

   • productively efficient, because every resource is fully used and no more of one good can be made without giving up another good.
   • allocatively efficient, because the combination of goods produced is exactly the one that society values most at the current prices.
   • currently unattainable with the existing resources and technology.
   • an example of full employment, because every worker in the economy is employed and all machinery is in use at the same time.

3. Why is every point on the production possibility frontier described as productively efficient?

   • Because every point produces the same mix of goods, so that the economy never has to decide between consumer goods and capital goods.
   • Because all points involve zero opportunity cost, so that producing more of one good does not reduce the output of any other good.
   • Because it is impossible to produce more of one good without producing less of another.
   • Because the government has chosen the best combination of goods, so the mix on the frontier reflects state policy priorities.

4. Which statement correctly explains why not all points on the frontier are allocatively efficient?

   • Because allocative efficiency only applies to points inside the frontier, where resources are not yet fully used by firms and households.
   • Because allocative efficiency depends on which combination of goods society most wants.
   • Because the frontier only shows the output of one good, so it cannot show how output is divided between goods and services.
   • Because some points on the frontier involve unemployment, so the resources used there are not fully employed in production.

5. The slope of a production possibility frontier represents:

   • the level of unemployment, which is the number of people who are willing and able to work but cannot find a job in the economy.
   • the rate of economic growth, which measures the annual percentage increase in real national output over a period of several years.
   • the rate of inflation, which measures how quickly the general level of prices rises across the economy in each year of the period.
   • the opportunity cost of producing one good in terms of the other.

6. An economy moves from producing 40 capital goods and 20 consumer goods to 50 capital goods and 15 consumer goods. What is the opportunity cost of the extra 10 capital goods?

   • 20 consumer goods.
   • 10 consumer goods.
   • 15 capital goods.
   • 5 consumer goods.

7. Economic growth is best shown on a production possibility diagram as:

   • an inward shift of the frontier.
   • a point inside the frontier moving towards it.
   • an outward shift of the frontier.
   • a movement along the frontier towards the origin.

8. An economy's frontier shifts inwards after a major earthquake destroys much of its capital stock. Which interpretation is correct?

   • The economy has become more productive.
   • The economy has moved to allocative efficiency.
   • The economy has experienced economic growth.
   • The economy's productive capacity has fallen.

9. Which movement on a production possibility diagram illustrates an increase in unemployment?

   • A point moving outward beyond the frontier.
   • A shift of the frontier to the right.
   • A point moving from inside the frontier to a point on the frontier.
   • A point moving from the frontier to a point inside it.

10. A PPF diagram shows a straight-line frontier between capital goods and consumer goods. What does this imply about opportunity cost?

    • Opportunity cost is constant along the frontier.
    • Opportunity cost is zero everywhere.
    • Opportunity cost falls as more capital goods are produced.
    • Opportunity cost rises without limit.

11. A bowed-outward production possibility curve most likely reflects:

    • decreasing opportunity cost as resources become less efficient, so that more of one good can be produced at lower cost over time.
    • constant opportunity costs between two goods, which means that the same amount of one good is always given up for each unit of the other.
    • a fall in productive capacity, which shows that the economy has lost some of the resources that it previously used for producing goods.
    • increasing opportunity cost because resources are not equally suited to each good.

12. Which of the following would cause an outward shift of the production possibility frontier for consumer goods and capital goods?

    • A reduction in the number of firms in the economy, which lowers competition and reduces the total output that firms are able to supply.
    • An improvement in technology that raises output per worker.
    • A rise in the price of consumer goods, which increases firms' revenue but does not change the economy's productive capacity.
    • A rise in the rate of unemployment, which means that more workers are idle and the economy produces less output than it did before.

13. Points A (0 capital, 60 consumer), B (20, 50), C (35, 35), D (45, 15) and E (50, 0) all lie on the same frontier. Which statement is correct?

    • None of the points is productively efficient, because every point requires a loss of consumer goods.
    • Point A is productively efficient, but point E is not, because it has zero consumer goods.
    • Point C is productively efficient, but point D lies inside the frontier and is therefore wasteful.
    • Every one of the five points is productively efficient, but only one of them can be allocatively efficient for a given set of preferences.

14. Using the points A (0 capital, 60 consumer), B (20, 50), C (35, 35), D (45, 15), E (50, 0): what is the opportunity cost in consumer goods of moving from B to C?

    • 1 consumer good per capital good.
    • 2 consumer goods per capital good.
    • 0.5 consumer goods per capital good.
    • 15 consumer goods per capital good.

15. Points A (0 capital, 60 consumer), B (20, 50), C (35, 35), D (45, 15) and E (50, 0) lie on one frontier. What is the opportunity cost in consumer goods of moving from D to E?

    • 3 consumer goods per capital good.
    • 1 consumer good per capital good.
    • 5 consumer goods per capital good.
    • 15 consumer goods per capital good.

16. A country on its frontier chooses a point with more consumer goods and fewer capital goods. Which concept best describes the change in its future productive capacity?

    • Its future frontier may shift inward because less investment in capital reduces future capacity.
    • Its future frontier will always move outward, because consumer spending is the main driver of productive capacity.
    • Its future frontier is unaffected by capital goods, since productive capacity depends only on the labour force and not on investment.
    • Its future frontier moves outward because consumers spend more, which raises the demand that firms use to plan new investment in capital.

17. Which of the following statements is an evaluation of the production possibility model?

    • It proves exactly which goods society should produce, because the model gives a single correct answer to the question of what to make.
    • It is useful for showing trade-offs and growth, but it simplifies by assuming two goods and fixed technology.
    • It shows that unemployment never occurs in real economies, because the frontier always assumes that every resource is fully employed.
    • It explains prices directly without any demand information, since the frontier shows the price of each good as a function of its output.

18. An economy's production possibility frontier shifts outward from one year to the next. Which change is most likely to explain this?

    • A move from the frontier to a point inside it, because firms reduce output and some resources are left unused by the economy in the year.
    • A fall in the price of consumer goods, which lowers the cost of living and so moves the economy to a point further out along the frontier.
    • A rise in unemployment, which means more workers are idle, so firms produce more from resources that were not used before.
    • An increase in the quantity of labour and capital, together with better productivity, which raises the economy's productive capacity.

19. An economy can produce 100 units of food or 50 units of cloth at full employment, with a straight-line frontier. What is the opportunity cost of one unit of cloth?

    • 0.5 units of food, because one unit of cloth is worth half a unit of food along the frontier in this economy.
    • 50 units of food, because the full output of cloth equals the number of units of food that the economy can produce in each period.
    • 100 units of cloth, because the economy can always produce its full output of food and cloth at the same time without any trade-off.
    • 2 units of food, because the frontier falls from 100 units of food to 50 units of cloth, so each unit of cloth costs two units of food.

20. Which action would move an economy from a point inside its production possibility frontier onto the frontier, without any growth in capacity?

    • A fall in productivity, which lowers the output the economy can produce and so pushes the frontier further inward over time in the country.
    • A permanent increase in the number of firms, which shifts the frontier outward and takes the economy beyond its limit.
    • Bringing idle workers and machinery back into use, so that output rises towards the frontier without any increase in productive capacity.
    • A rise in the rate of inflation, which raises the nominal value of output without changing its physical quantity.

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