Question 1

Suppose the economy moves from point B (1,9) to point C (2,7) on the Production Possibilities Curve shown. What is the opportunity cost of increasing healthcare from 1,000 to 2,000 units?

Accepted Answer

$$\frac{2}{1} = 2$$ units of education per unit of healthcare$

Question 2

If the economy moves from point D (3,4) to point E (4,0), what is the opportunity cost of increasing healthcare by 1,000 units?

Accepted Answer

$$\frac{4}{1} = 4$$ units of education per unit of healthcare$

Question 3

What does the bowed-out (concave) shape of the Production Possibilities Curve (PPC) in the diagram indicate about opportunity cost?

Accepted Answer

Opportunity cost increases as more of one good is produced.

Question 4

If the economy moves from point C (2,7) to point B (1,9), what is the opportunity cost of increasing education by 2 units (from 7 to 9 hundreds)?

Accepted Answer

$$\frac{1}{2} = 0.5$$ units of healthcare per unit of education$

Question 5

Which of the following best describes the opportunity cost of moving from point A (0,10) to point B (1,9)?

Accepted Answer

Giving up 1 unit of education to gain 1,000 units of healthcare

Question 6

Using the formula $$OppC_H = \frac{\Delta Education}{\Delta Healthcare}$$, what is the opportunity cost of healthcare when moving from point C (2,7) to point D (3,4)?

Accepted Answer

$$\frac{4-7}{3-2} = \frac{-3}{1} = -3 ($$absolute value: 3) units of education per unit of healthcare$

Question 7

If the economy is currently at point E (4,0), what is the opportunity cost of producing one more unit of education?

Accepted Answer

$$\frac{0-4}{4-3} = \frac{-4}{1} = -4 ($$absolute value: 4) units of healthcare per unit of education$

Question 8

Which of the following statements is true regarding the opportunity cost as the economy moves from point A to point E along the PPC?

Accepted Answer

The opportunity cost of healthcare increases.

Question 9

If the PPC were a straight line instead of bowed out, what would this imply about opportunity cost?

Accepted Answer

Opportunity cost is constant as more of one good is produced.

Question 10

Suppose a new technology allows the economy to produce more of both goods. How would this affect the PPC?

Accepted Answer

The PPC would shift outward.

Opportunity Cost and the Production Possibilities Curve (PPC)

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