What economic concepts are represented in the production possibilities model?
What will be an ideal response?
There are a large number of economic concepts illustrated by the production possibilities frontier:
? Scarcity of resources: The production possibilities frontier is a frontier between attainable and unattainable combinations.
? Opportunity cost: The negative slope of the production possibilities frontier indicates that in order to get more of one good, you must produce less of the other (a tradeoff).
? Increasing opportunity cost: The bowed out production possibilities frontier represents the increasing opportunity cost when more of a good or service is produced.
? Efficiency: Points on the production possibilities frontier use all resources while points below the production possibilities frontier represent unemployment or misallocated resources.
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Refer to the above figures. Which panel(s) represent the effect of an increase in the price level?
A) Panel A only B) Panels A and C only C) Panel D only D) none of the panels
If a union is successful in negotiating a wage rate which is above the market clearing wage, then which of the following would not occur?
A) The higher wages attract more workers leading to a shortage of jobs. B) Management may replace part of the workforce with machinery. C) To handle the surplus of labor the union will form a closed shop. D) The union may shift the supply of labor curve by developing methods to ration jobs.