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The economic problem

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Question 32

The production possibility frontier (PPF) diagram below illustrates the key aspects of the basic economic problem: scarcity, choice, and opportunity cost.

PPF Diagram

Which of the following statements correctly identifies how these three concepts are represented on the diagram?

scarcity is illustrated by the area inside the frontier containing point RRR; choice is illustrated by point SSS; opportunity cost is illustrated by the distance between point RRR and point PPP.

scarcity is illustrated by point SSS, which represents an unattainable output level with current resources; choice is illustrated by the necessity of selecting a single point on the frontier, such as PPP or QQQ; opportunity cost is illustrated by a movement from PPP to QQQ, where producing more capital goods requires sacrificing some consumer goods.

scarcity is illustrated by point PPP, where all resources are fully and efficiently employed; choice is illustrated by the movement from point RRR to point PPP; opportunity cost is illustrated by point SSS, which represents the foregone benefits of economic growth.

scarcity is illustrated by point RRR, which indicates a shortage of consumer goods relative to capital goods; choice is illustrated by the movement from point PPP to point SSS; opportunity cost is illustrated by the straight-line distance between PPP and QQQ.

The economic problem Questions

  1. A Level
  2. /Economics
  3. /The economic problem