1.2 Opportunity Cost and the Production Possibilities Curve (PPC)

• What is opportunity cost defined as?

  The cost of the next best alternative
• Scarcity arises because there are limited resources and unlimited wants
• The PPC assumes that all resources are fully employed without any idle capacity.


  True
• What is an implicit cost?

  Cost not involving cash
• What is the definition of scarcity?

  Limited resources, unlimited wants
• What does the Production Possibilities Curve (PPC) illustrate?

  Trade-offs between producing goods
• Arrange the assumptions of the PPC in order of relevance to its illustration of trade-offs:

  1️⃣ Fixed Resources

  2️⃣ Fixed Technology

  3️⃣ Full Employment
• The axes of the PPC graph represent the quantities of two different goods that can be produced.
• What does any point on the PPC curve represent?

  Efficient allocation of resources
• Shifts of the PPC illustrate changes in an economy's productive capacity
• An outward shift of the PPC is caused by discovering new resources.


  True
• What does depletion of resources lead to in the PPC context?

  Inward shift
• Opportunity cost is the value of the next best alternative
• What is the definition of scarcity?

  Limited resources
• The PPC is a visual representation of opportunity cost.


  True
• What is one of the key assumptions of the PPC?

  Fixed resources
• What is the opportunity cost of producing 50 more cars if a country can produce 100 cars or 300 computers?

  150 fewer computers
• Points inside the PPC represent efficient production levels.

  False
• What does a movement along the PPC illustrate?

  Trade-offs between goods
• What does an outward shift of the PPC represent in terms of economic growth?

  Increased productive capacity
• What does the slope of the PPC represent in the context of opportunity cost?

  Value of next best alternative
• How does opportunity cost arise from scarcity?

  By forcing choices between alternatives
• One assumption of the PPC is that resources are fixed in both quantity and quality
• What is the opportunity cost when resources are reallocated along the PPC?

  The value of the next best alternative
• The opportunity cost of studying instead of working is the wages that could have been earned.


  True
• The opportunity cost is the value of the next best alternative given up.
• If a student studies economics instead of attending a social event, the opportunity cost is the social interaction they would have gained.


  True
• What is the opportunity cost of moving along the PPC?

  Foregoing alternative choices
• How many goods does the PPC focus on in its assumptions?

  Two
• What is the PPC used to contrast with opportunity cost?

  Trade-offs between producing goods
• Arrange the two types of PPC shifts based on their impact on productive capacity:

  1️⃣ Outward Shift

  2️⃣ Inward Shift
• What could cause an inward shift of the PPC?

  Decrease in resources
• What does an inward shift of the PPC indicate?

  Economic contraction
• Match the PPC shift with its cause:

  Outward Shift ↔️ Increase in resources

  Inward Shift ↔️ Decrease in efficiency
• Steps to analyze PPC shifts and their implications

  1️⃣ Identify the type of PPC shift

  2️⃣ Determine the underlying cause (e.g., resource changes)

  3️⃣ Assess the impact on productive capacity

  4️⃣ Evaluate the implications for economic growth or contraction
• Match the cost type with its description:

  Explicit Cost ↔️ Direct monetary cost

  Implicit Cost ↔️ Indirect cost without monetary payment
• The PPC illustrates the maximum combinations of two goods an economy can produce with given resources and technology
• The PPC demonstrates how opportunity cost arises from the scarcity of resources
• In the PPC graph, the slope indicates the opportunity cost
• The axes of the PPC define the quantities of the two goods