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Question 1

Look at the PPF and decide whether the statements that follow are true or false: 

  1. R has the lowest level of unemployment.

  2. N is currently not achievable.

  3. A movement from M to L has an opportunity cost of C2 to C3.

  4. As more capital goods are produced the opportunity cost falls.

  5. A movement from R to S is impossible.

  6. T is likely to have the lowest standard of living in the short run.

  7. M is likely to have the highest standard of living in the long run.

Question 2

Production possibilities
Consider the information on Utopia, a hypothetical economy that can produce either rice or beans using all its scarce resources. The figures are in tonnes.

100 0
90 20
80 36
70 48
60 58
50 66
40 72
30 77
20 81
10 84
0 85
  1. Plot the PPF for Utopia, with rice on the Y-Axis, and beans on the x-axis.

  2. What is the opportunity cost of increasing production of rice from 30m tonnes to 40m?

  3. Comment on the situation experienced by Utopia if it produces 50m tonnes of rice and 50m of beans.