Test: Introduction To Economics - 5 - SSC CGL MCQ

Production, consumption and capital formation are called the basic economic activities of an economy. Scarce resources are used in the production of goods and services with the objective of satisfying our needs and wants.

The most common reason a PPF would shift is because of a change in technology, or because of economic growth.

The production possibility curve shows the maximum output combination of two goods and services that an economy can produce with all resources fully employed.

When there is improve in technology of X commodity it will rotate to right and if there is degradation in technology of X it will rotate left, here we assume that technolgy of Y remains constant.

The ideal shape of the PPC is typically concave to the origin, reflecting increasing marginal opportunity cost. As more resources are allocated to produce one good, the opportunity cost of producing additional units of that good increases, leading to a bowed-out shape. This indicates that resources are not equally efficient in producing both goods, causing the opportunity cost to rise as production shifts.

Hence, Correct Answer - Option B

A straight-line PPC occurs when the opportunity cost of producing one good over another remains constant. This happens when resources are perfectly substitutable between the two goods, leading to a constant trade-off rate.

Therefore, Correct Answer - Option D

Factors such as labor, capital and technology, among others, will affect the resources available, which will dictate where the production possibility frontier lies. The PPF is also known as the production possibility curve or the transformation curve.

Positive economics is the study of economics based on objective analysis. Most economists today focus on positive economic analysis, which uses what is and what has been occurring in an economy as the basis for any statement about the future.

Normative economics is a perspective on economics that reflects normative judgments or opinionated reactions toward economic projects, statements, and scenarios. Unlike positive economics, normative economics heavily concerns itself with value judgments and theoretical scenarios and economic statements that present "what ought to be" rather than facts and cause-and-effect statements.

Marginal opportunity cost is an economic term that analyzes the effect of producing additional units of a product on the costs of a business, as well as the opportunities the companies give up to produce more of a product.

Opportunity cost refers to a benefit that a person could have received, but gave up, to take another course of action. Stated differently, an opportunity cost represents an alternative given up when a decision is made. This cost is, therefore, most relevant for two mutually exclusive events.

The marginal rate of transformation can be defined as how many units of good x have to stop being produced in order to produce an extra unit of good y, while keeping constant the use of production factors and the technology being used.

MOC refers to the number of units of a commodity sacrificed to gain one additional unit of another commodity. In case of PPF, MOC is always increasing, i.e. more and more units of a commodity have to be sacrificed to gain an additional unit of another commodity.PPF is concave shaped because of increasing marginal opportunity costs, i.e. more and more units of one commodity are sacrificed to gain an additional unit of another commodity.

PC can be convex to origin if MOC is decreasing, i.e. less and less unites of a commodity are sacrificed for gain of one additional unit.

The slope of the curve at any point represents the ratio of the marginal opportunity costs of the two commodities. That is, the marginal opportunity cost of an extra unit of one commodity is the necessary reduction in the output of the other.

Economic growth is the increase in the inflation-adjusted market value of the goods and services produced by an economy over time. The "rate of economic growth" refers to the geometric annual rate of growth in GDP between the first and the last year over a period of time.

The most common reason a PPF would shift is because of a change in technology, or because of economic growth. Everything else held constant more goods can be produced after the technological change.  

Economic growth is an increase in what an economy can produce if it is using all its scarce resources. An increase in an economy's productive potential can be shown by an outward shift in the economy's production possibility frontier.

Severe earthquake in a country leads to decline in both human as well as capital resources. As a result of which less resources are left for producing the goods. Thus decline in resources will lead to a leftward shift in the PPC.

Severe flood leads to a decline in both human as well as capital resources. As a result less resources are left for production, thus result in leftward lift in PPC

During a recession (where all resources are not being utilized), then a movement out to the production possibility curve has no real opportunity cost.

The Production Possibility Curve (PPC) shows the maximum possible output combinations of two goods that an economy can produce using all its resources efficiently.

When there is massive unemployment, resources (like labor) are not being fully utilized, meaning the economy is operating inside the PPC. If this persists, it can cause a leftward shift of the PPC over time, as prolonged unemployment may lead to:

• Loss of skills (human capital degradation),
• Lower investment,
• Reduced productive capacity.

Hence, massive unemployment leads to a leftward shift of the PPC.

Marginal opportunity cost is defined as the amount of one good that needs to be given up in order to increase the production of the other good by one unit. It is calculated as Units of good one sacrificed/ units of the other good obtained. PPC is concave to origin because marginal opportunity cost increase due to law of diminishing returns.

Scarcity happens when the demand for goods is higher than the available supply.

• This means there are not enough goods to meet everyone’s wants or needs.
• Scarcity forces people or businesses to make choices about how to use limited resources.
• It is a basic concept in economics, affecting prices and decision-making.

Hence, the correct answer - Option B

Opportunity cost is the profit lost when one alternative is selected over another. The concept is useful simply as a reminder to examine all reasonable alternatives before making a decision.