Question

1. a production possibilities frontier illustrates the ____ facing an economy that ____ only two goods.

a. prices, sells
b. trade - offs, produces
c. trade - offs, consumes
d. shortages, produces

1. in the accompanying figure, if tealand is producing 10 million scones and 10 million cups of tea (point a), then we know that the economy:

a. is using its resources efficiently.
b. is using its resources inefficiently.
c. is fully - employing its resources.
d. is doing none of the above.

1. in the accompanying figure, if the economy of tealand is going through a major economic crisis causing massive work strikes, then we know the economy would produce at point ____.

a. a
b. b
c. c
d. e

1. in the accompanying figure, if the demand for tea increases and tealand decides increase production of tea and produce at point d rather than at point b, what is the opportunity cost of this decision?

a. 5 million cups of tea
b. 10 million cups of tea
c. 10 million scones
d. 20 million scones

1. when moving along a production possibilities curve, the opportunity cost to a society of getting more of one good:

a. is constant.
b. usually decreases
c. is measured in dollar terms
d. is measured by the amount of the other good that must be given up.

Explanation:

1. A production possibilities frontier (PPF) shows the trade-offs between producing two goods, as it represents the maximum combinations of goods an economy can produce with its resources.
2. Point A lies inside the PPF, which indicates resources are not being used to their full potential, meaning inefficient resource use.
3. An economic crisis with strikes reduces resource utilization, so production will be at a point inside the PPF, which is point A.
4. At point B, Tealand produces 40 million scones and 20 million tea. At point D, it produces 20 million scones and 40 million tea. The opportunity cost is the scone production given up: $40 - 20 = 20$ million scones.
5. By definition, opportunity cost along a PPF is the quantity of the alternative good that must be sacrificed to produce more of one good.

Answer:

1. B. Trade-offs, produces
2. B. is using its resources inefficiently.
3. A. A
4. D. 20 million Scones
5. D. is measured by the amount of the other good that must be given up.