1.1.4 Production possibility frontiers Quiz: Pearson Edexcel Economics A, Unit 1

The 20 questions

1. What does a production possibility frontier show?

   • The maximum combinations of goods and services an economy can produce, given its resources and technology.
   • The price level that equates aggregate demand and aggregate supply in the whole economy.
   • The total revenue earned by firms from selling all of their output at prevailing market prices.
   • The exact quantities of goods that consumers choose to buy at each price level in the market.

2. A point lying inside a production possibility frontier represents:

   • Allocative efficiency, since all resources are fully and optimally used in the economy.
   • The maximum productive potential of the economy at its current level of technology.
   • Productive inefficiency, since resources are unemployed or not used as fully as they could be.
   • A combination of goods that is unobtainable with current resources and technology.

3. A point lying outside the current production possibility frontier represents:

   • A level of output that is always achieved during a period of recession in the economy.
   • A point of productive efficiency that the economy has already achieved in the current period.
   • A combination that becomes attainable once the economy reduces its unemployment rate to zero.
   • A combination that is currently unobtainable given the economy's resources and technology.

4. Which of these causes a movement along a production possibility frontier rather than a shift of it?

   • A rise in the productivity of workers across all industries in the economy simultaneously.
   • An improvement in technology that raises the output of both goods at every level of production.
   • A reallocation of resources from producing capital goods to producing consumer goods.
   • An increase in the quantity of labour available to the economy as a whole over time.

5. Which of these would cause an outward shift of a production possibility frontier?

   • A reduction in consumer demand for goods, which lowers the level of output in the economy.
   • A move from a point of productive inefficiency to a point already on the existing frontier.
   • An increase in the quantity or quality of factors of production available to the economy.
   • A reallocation of resources from capital goods to consumer goods within existing capacity.

6. What is the distinction between capital goods and consumer goods?

   • Capital goods are used to produce other goods and services, while consumer goods are bought for final consumption.
   • Capital goods are non-renewable, whereas consumer goods are always made from renewable resources.
   • Capital goods are bought by consumers for final use, while consumer goods are used by firms to produce output.
   • Capital goods are always more expensive than consumer goods in every market in the economy.

7. Which of the following is an example of a capital good?

   • A bar of chocolate bought by a shopper for personal consumption at home.
   • A bottle of perfume bought as a birthday present for a relative of the buyer.
   • A factory production line used to assemble cars for sale.
   • A cinema ticket bought to watch a film with friends on a Saturday evening.

8. An economy can produce a maximum of 100 cars or 400 tonnes of wheat with full use of its resources. Moving from zero to 50 cars requires giving up 100 tonnes of wheat. What is the opportunity cost of one extra car at this point?

   • 0.5 tonnes of wheat, because 50 cars cost 100 tonnes of wheat in total for the economy.
   • 100 cars, since cars are the good being produced in the economy at the margin.
   • 4 tonnes of wheat, which is the total wheat output divided by the number of cars produced.
   • 2 tonnes of wheat.

9. Which of these points on a production possibility frontier would represent productive efficiency?

   • Any point lying on the frontier, since all resources are fully and efficiently used.
   • The origin only, since no goods are being produced at that point in the economy.
   • Any point lying outside the frontier, since economic growth moves output beyond it.
   • Any point lying inside the frontier, because some resources are idle in the economy.

10. A country experiences a severe recession with many workers unemployed. Where is it most likely to be located relative to its production possibility frontier?

    • On the frontier, showing that all resources are fully employed in the economy.
    • At the origin, showing that the country has stopped producing every good and service.
    • Inside the frontier, showing productive inefficiency because resources are unused.
    • Outside the frontier, showing an increase in its productive capacity during the downturn.

11. A new technology allows the same workers to produce more output of both goods at every level of production. What happens to the production possibility frontier?

    • It does not change, because technology affects costs but never changes the output levels of the economy.
    • It moves inward, showing a fall in the economy's productive potential over time.
    • It shifts outward, showing an increase in the economy's productive potential.
    • It rotates around the origin, so that only one good can be produced in greater quantity.

12. Which of these is an example of a movement along a production possibility frontier caused by a reallocation of resources?

    • Building new factories, which increases the capital stock of the economy as a whole.
    • Discovering new oil reserves, which increases the stock of natural resources available to the economy.
    • Training workers, which improves the skills of the labour force across the whole economy.
    • Moving labour and machinery from making tanks to making tractors, with no change in total resources.

13. A production possibility frontier has capital goods on the vertical axis and consumer goods on the horizontal axis. Which move represents investment for future growth?

    • Moving along the horizontal axis, producing more consumer goods and fewer capital goods today.
    • Moving up the vertical axis, producing more capital goods and fewer consumer goods today.
    • Moving to the origin, producing no goods at all in the economy during the period.
    • Moving to a point outside the frontier, producing more of both goods at the same time.

14. A production possibility frontier is a straight line running from 60 units of good X (and no good Y) to 30 units of good Y (and no good X). What is the opportunity cost of one unit of good Y?

    • 30 units of good Y, since Y is the good being produced at the margin.
    • 90 units of good X, which is the sum of the two maximum outputs of the economy.
    • 2 units of good X.
    • 0.5 units of good X, since 30 units of Y trade for 60 units of X in full.

15. Which best describes the shift of a production possibility frontier caused by a fall in the quantity of labour through emigration?

    • The frontier shifts outward, because fewer workers mean lower wages and higher productivity for each worker.
    • The frontier rotates, since emigration affects only the relative prices of the two goods produced.
    • The frontier is unchanged, because movement along the curve is caused by migration of people.
    • The frontier shifts inward, because the economy has fewer factors of production available.

16. Explain why a country that invests heavily in capital goods today may achieve a higher production possibility frontier in the future, while consuming less now.

    • Capital goods increase future productive capacity, so the frontier can shift outward later, at the cost of fewer consumer goods today.
    • Investment reduces the country's productive capacity, so the frontier always moves inward in every future year.
    • Consumer goods are the only way to increase productive capacity, so investment in capital never affects future output.
    • Capital goods are consumed immediately, so the country gains consumer goods today without any effect on the future.

17. A production possibility frontier is bowed outwards (concave to the origin). What does this imply about the opportunity cost of producing more of one good?

    • Opportunity cost rises as more of one good is produced, because resources are less suited to producing the second good.
    • Opportunity cost is zero at every point, because the economy can switch resources between goods at no cost.
    • Opportunity cost is constant at every point, so the trade-off between the goods never changes in the economy.
    • Opportunity cost falls as more of one good is produced, because resources become more specialised in production.

18. An economy is producing at a point inside its production possibility frontier. A government policy reduces unemployment. What happens to the economy's position, and why?

    • It moves along the frontier, since resources are reallocated between goods when unemployment falls.
    • It moves outside the frontier, since employing idle resources raises the economy's productive potential immediately.
    • It moves to the origin, since reducing unemployment means fewer goods are produced in total.
    • It moves towards the frontier, since employing idle resources raises output without changing productive potential.

19. Evaluate: is a point on the production possibility frontier always preferable to a point inside it?

    • Yes, because any point on the frontier is always preferable to any point inside it for every society.
    • Yes, because points inside the frontier are unobtainable, so the economy can never choose them in practice.
    • No, because points inside the frontier always give higher economic welfare than points on it.
    • Not necessarily, because a point on the frontier may combine goods in a way society does not want, although it is productively efficient.

20. A government wants to raise the economy's long-run growth. Which policy is most consistent with an outward shift of the production possibility frontier?

    • A reduction in interest rates that encourages households to spend more on consumer goods now.
    • A ban on imports that protects domestic firms and redistributes existing demand across sectors.
    • Investment in education and infrastructure that increases the quality of labour and the stock of capital available.
    • A temporary cut in income tax that boosts consumer spending for one year only.

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