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1.2.1

1.2 Opportunity Cost and the PPC — Practice

Unit 1 · Basic Economic Concepts

1.2 Practice  Opportunity Cost and the PPC

Guiding question

Can you tell a movement along the curve apart from a shift of the curve in an unfamiliar scenario — and calculate opportunity cost from a table you have not seen before?

How the real paper is built

The ministry sets half multiple choice and half written answer in every subject. The two halves are not the same skill. In the multiple-choice half you have to spot the wrong options quickly — and the wrong options are built out of the mistakes students really make. In the written half nobody gives you the answer to recognise; you have to produce it, in your own words, with a reason.

Practise both. Being good at one half and weak at the other costs you exactly half the paper.

1
An economy currently producing at a point on its PPC decides to reallocate workers from producing tractors to producing textiles. This decision represents which of the following?
2
A country's PPC is a straight line rather than bowed outward. What does this imply about its resources?
3
An economy is producing at a point inside its PPC. Which of the following is the most likely explanation?
4
Which of the following would cause an economy's PPC to shift outward?
Level 1 · say what it is
1(a)
A country produces only bicycles and computers. Its production possibilities schedule is: at Combination P, it produces 0 computers and 100 bicycles. At Combination Q, it produces 20 computers and 80 bicycles. At Combination R, it produces 40 computers and 40 bicycles. Calculate the opportunity cost, in bicycles, of the 20th computer produced (moving from P to Q) and of the next 20 computers produced (moving from Q to R). Show your work, and state whether this is consistent with increasing opportunity cost.
[3 marks]
Level 2 · explain why
1(b)
Draw a correctly labeled production possibilities curve for the country of Larenna, which produces only textiles and machinery. Label a point A that represents Larenna currently operating with 12% unemployment, and a point B that represents Larenna one year later after a major new oil field is discovered and brought into production, assuming Larenna is again at full employment. Explain the relationship between points A and B and the two curves they would sit on.
[4 marks]

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