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TUTORIAL 2(INTRODUCTION TO ECONOMICS- PRODUCTION POSSIBILITIES CURVE)STRUCTURE QUESTIONSQUESTION 1The following table shows efficient combinations of two goods, X and Y that an economy can produce.Combination Good X Good Y A 15 0 B 10 1 C 5 2 D 0 3a) What is the type of opportunity cost faced by thi...

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TUTORIAL 2 (INTRODUCTION TO ECONOMICS- PRODUCTION POSSIBILITIES CURVE) STRUCTURE QUESTIONS QUESTION 1 The following table shows efficient combinations of two goods, X and Y that an economy can produce. Combination A B C D

Good X 15 10 5 0

Good Y 0 1 2 3

a) What is the type of opportunity cost faced by this economy? Give a reason for your answer. (2 marks)

b) Sketch a production possibility curve for the economy and label the following: i. Point E to show inefficiency ii.

Point F to show resource scarcity. (2 marks)

c) On separate diagrams, show the effect of the following on the economy's production possibility curve: i. A technological advancement in the production of Good X.

ii. An increase in population. (2 marks)

d) Give two assumptions of the production possibility curve.

(2 marks) QUESTION 2 The diagram below shows the production possibility curve (PPG) for rice and cloth. Rice (kg)

B

D

A

C

Cloth (m)

a) Identify the points which represent: (i) scarcity - _______________ (ii) choices - _____________ (iii) inefficiency - ___________ (3 marks) b) Copy the above diagram and indicate the effects on the PPC when the following situations occur. (Draw a different diagram for each of the following) (i)

The discovery of a new kind of seedling that can increase the yield of rice.

(ii)

The invention of a more efficient cloth-making machine .

(iii) An improvement in the technology of producing both rice and cloth.

(3 marks)

c) The concavity of the production possibility curve indicates that opportunity cost is __________________. (1 mark) d) Give three (3) assumptions in constructing a production possibility curve (3 marks) QUESTION 3

The data given in the table below represents the maximum production possibilities for a country producing only two goods. Combination A B C D E

Consumer goods (unit) 14 12 9 5 0

Military goods (unit) 0 2 4 6 8

a) Plot the production possibilities curve for the country (3 marks)

b) What is the opportunity cost of producing military goods if the country's production moves from: i) point A to point B

ii) point C to point E

(2 marks)

c) Suggest two (2) ways how this country could increase the production of both consumer goods and military goods in the future (2 marks)

QUESTION 4 The diagram below depicts the Production Possibilities Curve (PPC) for a nation producing carrots and tomatoes. The usual assumptions regarding PPC are implied.

a)

calculate the opportunity cost of i. producing 2,500 kg of tomatoes

(1 mark)

ii. increasing the production of carrots from 500 kg to 1,000 kg

(1 mark)

b) Is the value of opportunity cost increasing or constant? Justify your answer. (2 marks)

c) Illustrate in separate diagrams the effect of the following situations on the PPC i.

A massive flood hit the country

iii. An introduction of a new fertilizer that increases the yield of crops. (2 marks)

QUESTION 5 A country Desajaya produces only two goods: cars and food. Assuming that it could produce any of the following combinations shown in Table 1. Table 1: The Production Possibility Table for cars ad good of country Desajaya. Combinations A B C D E F G

Units of cars 0 1 2 3 4 5 6

Units of food 24 23 21 18 14 8 0

a) Using a graph paper, plot the production possibility curve for country Desajaya. b) (2 marks)

c) Explain briefly two (2) assumptions used in constructing the production possibility curve. (2 marks)

d) What is the opportunity cost of producing one more unit of car if the current level of production is: i) 2 units? ii) 3 units

iii) Is the opportunity cost increasing, decreasing or constant? Is the curve Convex or concave to the origin? (3 marks)

e) Sketch in separate diagrams the effect of the following situations on the production possibility curve: i) Technical innovation in the production of cars

ii) a drought that hits the country

(3 marks)

QUESTION 6 The following table shows the production possibilities combination in country M. Combination

Book (unit)

Muffin (unit)

A B C D E F

0 50 100 150 200 250

300 200 120 60 20 0

Opportunity cost per unit of book

a) Complete the table above and briefly explain the concept of opportunity cost. (3 marks) b) Sketch the production possibility curve. (2 marks)

c) Calculate the opportunity cost by increasing the production of: i) book from point A to D ii) muffin from point E to B iii) 250 units of book (3 marks)

d) State the type of opportunity cost faced by the country. Give reason to your answer. (2 marks)

QUESTION 7 The table below shows the production possibilities curve for an economy. Combination

Shoes (pair)

Books (unit)

A B C D E F

0 10 20 30 40 50

250 200 150 100 50 0

a)

Opportunity Cost of producing Shoes

Opportunity Cost of producing per unit of shoes

Using a graph paper, plot the production possibilities curves for shoes and books.

b) Show the effect of an increase in resources in shoes production on the same diagram in (a). c)

Complete the above table.

d)

State any two (2) types of opportunity cost...