chapter2ans - Answer guide Ch 2 Review Quiz(page 36 1 The...

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Answer guide Ch 2 Review Quiz (page 36) 1. The unattainable combinations of production that lie beyond the PPF curve illustrate the concept of scarcity . 2. The combinations of outputs that lie on the PPF curve illustrate the concept of production efficiency. Points on the frontier indicate that increasing the production of one good requires decreasing the production of another good, which is the definition of production efficiency. 3. Movements along the PPF frontier illustrates that producing more of one good requires that less of the other good be produced. 4. The negative slope of the production possibility curve illustrates the concept of opportunity cost . Moving along the production possibility frontier, producing additional units of a good requires that the output of another good must fall. 5. The slope of the PPF is a ratio that expresses the quantity of lost production of one good when increasing the units of the other good produced. 6. The opportunity cost of pizza – for example - production increases with the quantity of pizza produced as the slope of the PPF curve becomes ever steeper, creating the bowed out effect (the concavity of the PPF function). Review Quiz (page 39) 1. Marginal cost is the opportunity cost of producing one more unit of a good or service and is reflected in the slope of the PPF curve. 2. The marginal benefit of a good or service is the benefit received from the last unit consumed. It is measured by what an individual is willing to give up (or pay) for that last unit. 3. As the more of a good is consumed, the marginal benefit received from each unit is smaller than the marginal benefit received from the unit consumed immediately before it, and is larger than the marginal benefit from the unit consumed immediately after it. – Diminishing marginal benefits 4. Production efficiency occurs when production takes place at a point on the PPF curve. 5. 1) production efficiency is achieved, and 2) the marginal benefit received from the last unit produced is equal to the marginal cost for producing the last unit. Review Quiz (page 41) 1. The two key factors that generate economic growth are technological change and capital accumulation . 2. Economic growth shifts the PPF rightward. 3. When a society devotes more of its scarce resources to research and development of new technologies, or devotes additional resources to produce more capital equipment, both decisions lead to increased consumption opportunities in future periods at the cost of less consumption today. 4. Hong Kong chose to devote a greater proportion of its available resources to the production of capital than the United States. Review Quiz (page 45) 1. A person has a comparative advantage in production when he or she gives up the least amount of production of another good or service than anyone else when producing one unit of another good or service.
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