PPC practice questions

1. The following is a production possibilities table for potatoes (lbs) and fish(lbs) in Atlantis, a small island
in the South Atlantic.
A
B
C
D
E
F
Potatoes
1,000
800
600
400
200
0
Fish
0
300
500
600
650
675
a) Draw the production possibilities frontier with potatoes on the horizontal axis and fish on vertical axis
illustrating these options, showing points A-F.

b) Can Atlantis produce 500 pounds of fish and 800 pounds of potatoes? Explain. Where would this point lie
on the production possibilities curve?
No, Atlantis cannot produce 500 pounds of fish and 800 pounds of potatoes as the combination is not
achievable. The maximum it can produce is 600 pounds of potatoes. The point would lie outside the
production possibility curve.
c) What is the opportunity cost of increasing the annual output of potatoes from 600 to 800 lbs?
200 pounds of fish is the opportunity cost of increasing 600 pounds of potatoes to 800 pounds. Atlantis needs
to cut the production of fish from 500 pounds to 300 pounds i.e by 200 pounds, if the output of potatoes has
to be increased from 600 pounds to 800 pounds.
d) What is the opportunity cost of increasing the annual output of potatoes from 200 to 400lbs?
The opportunity cost of increasing the annual output of potatoes from 200 to 400lbs is 50 pounds of fish.
The production of fish needs to be cut down from 650 lbs to 600 lbs to achieve the increase output of
potatoes from 200lbs to 400lbs.
e) Can you explain why the answers in c) and d) are not the same?
As we move along the curve, the opportunity cost increases which means at two different points opportunity
cost differs. The PPF becomes steeper as we move further along the right.
f) Label point G inside the production possibilities curve. What does it indicate? Label H outside the curve.
What does this point indicate? What must occur for the economy to attain the level of production indicated
by point H?

2. Whofacesthehighestopportunitycost(lostincome)whentheystayinschoolasopposedtoworking?
Explain.(1)ahighschoolgraduate(2)acollegegraduate(3)amedicalschoolgraduate.
3. Distinguish inefficiency from economic contraction as it relates to the production possibilities curve. What
causes each scenario?
4. What can a nation do to increase its rate of economic growth? Why is economic growth among the major
goals of all countries?