Question 1

What is the production possibilities curve (PPC)?

Accepted Answer

A model used to show the tradeoffs associated with allocating resources between two different goods

Question 2

What are the three assumptions in a Production Possibilities Curve (PPC)

Accepted Answer

Only two goods can be made

Fixed resources

Fixed technology

Question 3

What determines the shape of the PPC?

Accepted Answer

Whether opportunity costs are constant, increasing, or decreasing

Question 4

What can cause the PPC to shift?

Accepted Answer

Changes in factors of production and changes in productivity/technology

Question 5

What happens to the PPC with economic growth?

Accepted Answer

It shifts outward

Question 6

What are capital goods?

Accepted Answer

Goods created for indirect consumption

(goods created for production; buildings, machinery, tools)

Question 7

What are consumer goods?

Accepted Answer

Goods created for consumption

(food, clothing)

Question 8

What is constant opportunity cost?

Accepted Answer

When resources are easily adaptable for producing either good in a PPC

(results in a straight PPC curve)

Question 9

What is increasing opportunity cost?

Accepted Answer

As the production of one good increases, the opportunity cost of producing an additional unit of that good increases.

(opposite of constant opportunity cost; causes a curved PPC)

Question 10

What does point 1 represent on this graph?

Accepted Answer

Point 1 represents an inefficient production point of resources

Question 11

What does point 2 represent on this PPC graph?

Accepted Answer

Point 2 represents a point of unattainable production

Question 12

How does investment in capital goods affect the PPC?

Accepted Answer

Investment in capital goods causes greater economic growth than consumer goods

Question 13

What is the opportunity cost of moving from B to C, given the following production possibilities?

Accepted Answer

4 shoes

1.2 Opportunity Cost & the PPC, AP Macroeconomics Flashcards