Scarcity, choice and resource allocation: Practice Questions

• a.Opportunity cost, because to produce more of one good, some of another good must be sacrificed.
• b.Allocative efficiency, because the economy is producing what consumers want.
• c.Economic growth, because the productive capacity of the economy is increasing.
• d.Unemployment, because the economy is producing at a point inside the curve.

• a.The central economic problem of scarcity is permanently solved.
• b.The economy experiences an increase in its productive capacity.
• c.The opportunity cost of increasing production remains zero throughout the move.
• d.The economy achieves productive efficiency and utilizes its unemployed resources.

• a.

  An improvement in business confidence that leads firms to use their existing machinery more intensively.

• b.

  An influx of skilled foreign workers that increases the quantity and quality of the labour force.

• c.

  A successful government policy that retrains unemployed workers and places them into vacancies.

• d.

  The discovery of inefficient allocation of raw materials across different manufacturing sectors.

• a.The central problem is primarily about how to ensure full employment of the labor force.
• b.Scarcity exists only in developing economies where there is a lack of advanced technology.
• c.Economic agents face scarcity because governments fail to allocate resources equitably.
• d.Scarcity arises because human wants are unlimited while resources available to satisfy them are finite.

• a.

  A parallel outward shift of the entire PPC, indicating an increase in the productive capacity for both goods.

• b.

  The PPC shifts inwards because resources are diverted away from Consumer Goods to adopt the new technology.

• c.

  The intercept on the Capital Goods axis shifts outwards while the intercept on the Consumer Goods axis remains unchanged.

• d.

  A movement along the existing PPC towards a point that represents more Capital Goods production.

Write your answer out first, then check it against the worked solution.

Write your answer out first, then check it against the worked solution.

Write your answer out first, then check it against the worked solution.