AP Macroeconomics : How to find production possibility diagrams

Study concepts, example questions & explanations for AP Macroeconomics

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Example Questions

Example Question #1 : How To Find Production Possibility Diagrams

Which of the following best describes the typical shape of a Production Possibility Frontier?

Possible Answers:

The Production Possibility Frontier is bowed inward with respect to the origin.

The Production Possibility Frontier is always linear and horizontal.

The Production Possibility Frontier is always linear and increasing.

The Production Possibility Frontier is bowed outward with respect to the origin.

Correct answer:

The Production Possibility Frontier is bowed outward with respect to the origin.

Explanation:

The Production Possiblity Frontier is typically bowed outward with respect to the origin, reflecting the law of increasing opportunity costs, which states that as production of a particular good or service increases, costs associated with producing that good or service increase too. 

The correct answer, therefore, is "The Production Possibility Frontier is bowed outward with respect to the origin." The other answer choices are incorrect because they do not accurately account for the law of increasing opportunity costs.

Example Question #1 : How To Find Production Possibility Diagrams

Which of the following explain why a production possibilities frontier would be bowed outward?

Possible Answers:

None of the other answers

Constant opportunity costs of producing more goods

Decreasing opportunity costs of producing more goods

Increasing and then decreasing opportunity costs of producing more goods

Increasing opportunity costs of producing more goods

Correct answer:

Increasing opportunity costs of producing more goods

Explanation:

The bowed-outward shape of the PPF represents increasing opportunity costs of production because it indicates that it is becoming more and more costly to produce the good on the x-axis. This higher cost is represented by the increasingly steep slope of the PPF. The slope of the PPF corresponds to the costs of producing an extra unit of X. The steeper the slope, the steeper the cost.  

Example Question #3 : How To Find Production Possibility Diagrams

Which of the following best explains why a production possibilities frontier would have increasing opportunity costs as we move along its length?

Possible Answers:

It is generally more costly for a country to produce capital goods witha  fixed number of resources

Moving along the production possibilities frontier requires an increase in the resources available to a country

The resources/factors of production become less and less suitable for the new production mix 

It is generally more costly for a country to produce consumer goods with a fixed number of resources

None of the other answers

Correct answer:

The resources/factors of production become less and less suitable for the new production mix 

Explanation:

The increasing opportunity costs as you move along a PPF are a result of the resources that are more specialized in the production of one good being used to produce the other good. These resources become less and less productive leading to higher costs. If the two goods are cars and burgers, the more burgers you start to make, the more car mechanics you have to start using to make these burgers (since your resources are fixed). The less productive car mechanics (that is, in the production of burgers) will lead to higher production costs. This is due to the fact that they will earn the same hourly wage as the burger specialists, but produce fewer burgers per hour. The cost of burger production progressively goes up. 

Example Question #2 : How To Find Production Possibility Diagrams

Use the following diagram to answer the question below

Ppf

Which of the following points represents the best production outcome for an economy looking for long-term, sustainable growth?  

Possible Answers:

Both  and  would be equally suitable as they represent points of productive efficiency for the economy

There is insufficient information to answer the question

Correct answer:

Explanation:

 would be the most appropriate point since it has a higher quantity of capital goods than point . Capital goods have a greater impact on the long term growth of an economy.  

Example Question #5 : How To Find Production Possibility Diagrams

Use the diagram below to answer the question below:

Ppf

Which of the following best explains a move from point  to point ?

Possible Answers:

A move from a point on the PPF with higher unemployment to a point on the PPF with lower unemployment

None of the other answers

A move from an inefficient point of production to a more efficient point of production

Moving from one productively efficient point on the PPF to another productively efficient point on the PPF

A move from a point of higher concentration of capital goods to one of higher concentration of consumer goods, involving a greater use of labour as a primary resource of production

Correct answer:

Moving from one productively efficient point on the PPF to another productively efficient point on the PPF

Explanation:

Both point  and  are along the PPF, so they are both productively efficient. For this reason, they represent identical unemployment rates. Additionally there is nothing to convince us that labour is necessarily the primary resource in the production of consumer goods in this economy. 

Example Question #6 : How To Find Production Possibility Diagrams

Use the following diagram to answer the questions below:

Ppf efficiency

If the lower diagram represents the marginal costs and marginal benefits of the consumer good to society, which of the following answers correctly represents the characteristics of the points on the production possibilities frontier?

Possible Answers:

Point  is an allocatively inefficient point but productively efficient point of production

Point  is a point of allocative efficiency and productive efficiency

Point  is a productively efficient point but allocatively inefficient point

Point  is allocatively efficient but productively inefficient

Point is neither productively efficient nor allocatively efficient

Correct answer:

Point  is a point of allocative efficiency and productive efficiency

Explanation:

At point , there is allocative efficiency because at this point the society is producing the right mix of goods (supply (marginal cost) of the consumer good matches its demand (marginal benefit])). Point  is on the PPF and as such is also productively efficient since all resources are being used for production at all points on the PPF. 

Example Question #7 : How To Find Production Possibility Diagrams

Use the diagram below to answer the following question

Ppf

Which of the following is true about the points in the diagram?

Possible Answers:

Point  and point  both exhibit cyclical forms of unemployment

There is no unemployment at point 

Unemployment at point  is both cyclical and frictional

Unemployment at point  consists of both frictional and structural forms of employment

The unemployment at Point  is equal to the natural unemployment rate 

Correct answer:

Unemployment at point  consists of both frictional and structural forms of employment

Explanation:

On the PPF, the unemployment rate is equal to the natural rate of unemployment which consists of frictional unemployment and structural employment but excludes cyclical unemployment. 

Example Question #3 : How To Find Production Possibility Diagrams

Use the following graph to answer the questions below:

 

Ppf econgrowth

Which of the following best explains what caused the movement from PPF1 to PPF2?

Possible Answers:

A change in land use from residential use to industrial use

A change in societal preferences towards consumer goods rather than capital goods

An reduction in cyclical unemployment in the society

An increase in the size of the labour force

An increase in the portion of the population joining the military

Correct answer:

An increase in the size of the labour force

Explanation:

The move from PPF1 to PPF2 represents an increase in the productive potential(possibilities) of the economy. This can be effected by an increase in the productive resources in the economy, which would be represented by an increase in the labour force. 

Example Question #9 : How To Find Production Possibility Diagrams

Use the diagram below to answer the following question:

 

Ppf growth in one good

Which of the following best explains the production possibilities diagram shown?

Possible Answers:

An economic boom

An increase in the size of the labor force 

A technological improvement that makes it cheaper to produce consumer goods

None of the other answers

A shift in preferences of the society away from capital goods and towards consumer goods

Correct answer:

A technological improvement that makes it cheaper to produce consumer goods

Explanation:

The diagram shows an increase in the potential productive capacity of the consumer good production without a corresponding increase in the productive capacity of capital good production. The best answer then is that whatever change happened affected only the capacity to produce consumer goods. Labour force increases would increase the capacity to produce both goods, and so would an economic boom.

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