Chapter 4 (Production Possibility Curve)

Chapter Review Questions.

1)What is meant by productive capacity?

A)Production capacity means the maximum combination of goods and services which has been
produced in the economy and the mixture of goods in the economy.

2)What does a production possibility curve diagram show?

A)This diagram shows how the maximum combination of goods and services take place in the
economy at the per period of time how the mixture of goods produced in the economy.

3)How is the concept of opportunity cost shown on a ppc diagram?

A)It is shown as the amount of olive oil is produced as the expense of wooden furniture in the
ppc diagram, that both can increase without an opportunity cost.

4)Which two conditions must hold for an economy to be operating on its ppc?

A)First is the no labours should be left as the unemployment all of them should be used in the
factor of production. Second is the factors of production should be in their best use and best
allocated to them.

5)What are the causes of a shift of the ppc?

A)The causes are if the product is produced more than the one product the other product will
have the less of it like if this product A wants to produce more of Product B the product b will not
have the same amount or same value as the product a.