Production Possibility Curve - A short Note 2016

Production Possibility Curve 

A production possibility frontier (PPF) shows the maximum possible output combinations of two goods or services an economy can achieve when all resources are fully and efficiently employed
The PPF will shift outwards when:

1. There are improvements in productivity and efficiency perhaps because of the introduction of new technology or advances in the techniques of production or an increase in the quality of labour
2. Better management of existing resources
3. More factors of production are available and used perhaps due to an increase in the size of the workforce due to inward migration or a rise in the amount of capital inputs available for businesses due to a rise in business investment
4. The discovery of new natural resources such as shale gas
5. Innovation and technological advances which makes exploration and extraction of known resources more commercially viable

Can a production possibility frontier shift inwards?
Yes – if this happened, then the productive potential of a country must have suffered perhaps due to:

1. The damaging effects of severe natural disasters such as a tsunami, floods, persistent drought and other extreme weather events
2. The economic damage caused by war and other types of conflict for example in failing states
3. Large scale net migration of people out of a country e.g. when there is very high unemployment - sometimes known as a brain drain or human capital flight
4. A fall in productivity of labour resources
5. Excessive extraction rates of renewable resources

Multiple Choice Questions on Demand

Please solve this Quiz and come for any type of problem

Multiple Choice Quiz

1. Which of the following is not a determinant of a consumer's demand for a commodity?
   a. Income
   b. Population
   c. Prices of related goods
   d. Tastes
2. The law of demand refers to the
   a. inverse relationship between the price of a commodity and the quantity demanded of the commodity per time period.
   b. direct relationship between the desire a consumer has for a commodity and the amount of the commodity that the consumer demands.
   c. inverse relationship between a consumer's income and the amount of a commodity that the consumer demands.
   d. direct relationship between population and the market demand for a commodity.
3. If the price of a good increases, then
   a. the demand for complementary goods will increase.
   b. the demand for the good will increase.
   c. the demand for substitute goods will increase.
   d. the demand for the good will decrease.
4. If consumer income declines, then the demand for
   a. normal goods will increase.
   b. inferior goods will increase.
   c. substitute goods will increase.
   d. complementary goods will increase.
5. Which of the following will cause a decrease in quantity demanded while leaving demand unchanged?
   a. An increase in the price of a complementary good.
   b. An increase in income when the good is inferior.
   c. A decrease in the price of a substitute good.
   d. An increase in the price of the good.
6. Which of the following will not decrease the demand for a commodity?
   a. The price of a substitute decreases
   b. Income falls and the good is normal
   c. The price of a complement increases
   d. The commodity's price increases
7. Demand curves have a negative slope because
   a. firms tend to produce less of a good that is more costly to produce.
   b. the substitution effect always leads consumers to substitute higher quality goods for lower quality goods.
   c. the substitution effect always causes consumers try to substitute away from the consumption of a commodity when the commodity's price rises.
   d. an increase in price reduces real income and the income effect always causes consumers to reduce consumption of a commodity when income falls.
8. If a good is normal, then a decrease in price will cause a substitution effect that is
   a. positive and an income effect that is positive.
   b. positive and an income effect that is negative.
   c. negative and an income effect that is positive.
   d. negative and an income effect that is negative.
9. If the consumption decisions of individual consumers are independent, then
   a. the market demand curve will be flatter because of the bandwagon effect.
   b. the market demand curve will be steeper because of the snob effect.
   c. the market demand curve will not be equal to the horizontal summation of the demand curves of individual consumers.
   d. none of the above is correct.
10. If the demand curve for a firm's output is perfectly elastic, then the firm is
    a. a monopolist.
    b. perfectly competitive.
    c. an oligopolist.
    d. monopolistically competitive.
11. Firms in an industry that produces a differentiated product
    a. are either monopolists or oligopolists.
    b. are either monopolistically competitive or perfectly competitive.
    c. are either monopolistically competitive or oligopolists.
    d. are either perfectly competitive or oligopolists.
12. The type of industry organization that is characterized by recognized interdependence and non-price competition among firms is called
    a. monopoly.
    b. perfect competition.
    c. oligopoly.
    d. monopolistic competition.
13. The demand by a firm for inputs used in the production of a commodity that the firm offers for sale
    a. is called a derived demand.
    b. is directly related to the demand for the commodity.
    c. is negatively sloped.
    d. is all of the above.
14. If the price elasticity of demand for a firm's output is elastic, then the firm's marginal revenue is
    a. positive, and an increase in price will cause total revenue to increase.
    b. positive, and an increase in price will cause total revenue to decrease.
    c. negative, and an increase in price will cause total revenue to increase.
    d. negative, and an increase in price will cause total revenue to decrease.
15. If a firm that produces carrots operates in a perfectly competitive industry, then
    a. the demand for the firm's carrots must be horizontal.
    b. the demand by individual consumers for carrots must be horizontal.
    c. the market demand for carrots must be horizontal.
    d. all of the above must be true.
16. If a firm raises its price by 10% and total revenue remains constant, then
    a. the price elasticity of demand for its output is unitary.
    b. marginal revenue is equal to zero.
    c. quantity demanded has decreased by 10%.
    d. all of the above are correct.
17. The price elasticity of demand for a good will tend to be more elastic if
    a. the good is broadly defined (e.g., the demand for food as opposed to the demand for carrots).
    b. the good has relatively few substitutes.
    c. a long period of time is required to fully adjust to a price change in the good.
    d. none of the above are true.
18. If a good is inferior, then
    a. the income elasticity of demand will be negative.
    b. the income elasticity of demand will be zero.
    c. the income elasticity of demand will be positive.
    d. a decrease in income will cause demand to decrease.
19. If two goods are complements, then
    a. the cross-price elasticity of demand will be negative.
    b. the cross-price elasticity of demand will be zero.
    c. the cross-price elasticity of demand will be positive.
    d. an increase in the price of one good will increase demand for the other.
20. The cross-price elasticity of demand between two differentiated goods produced by firms in the same industry will be
    a. negative and large.
    b. negative and small.
    c. positive and large.
    d. positive and small.
21. Which of the following is viewed by firms as an advantage of electronic commerce over traditional commerce?
    a. Consumers have the ability to easily compare product prices.
    b. The cost of executing a transaction is much lower.
    c. Firms have the ability to gather useful information about buyers.
    d. Firms can reduce their reaction times to changing market conditions and increase their sales reach.
22. Electronic commerce is a significant market channel for the sale of
    a. travel services.
    b. books.
    c. computer products.
    d. All of the above.

Class 12 Unit 1 Micro Economics Test

Unit 1 Introduction

Time 01 hour

Marks  20 marks

Q1 Classify as True or False ( 5*2=10)

·         Economic problem and scarcity of resources are not related to each other

·         A free medicine given to the patients in hospital is not a scarce commodity

·         PPC shows increasing slope

·         With fuller utilisation of resources , an economy can shift to point beyond PPC

·         Opportunity cost is an avoidable cost

Q2 Why there should be huge unemployment in India when scarcity of resources is a universal fact -3 marks

Q3 Apply the concept of PPC to explain the problem of scarcity -2 marks

Q4 Explain the problem of What to produce – 2 marks

Q5 What factors lead to shift of the PPC – 3 marks