Question

True or false? If false, explain why. (3 marks)

a. If additional units of a good could be produced at a constant opportunity cost, the production possibility frontier would be bowed outward (concave).

b. An increase in the unemployment rate may be represented as a movement from a point on the production possibility frontier to a different point on the frontier.

c. In response to a surplus, the market price of a good will fall; as the price falls, the quantity demanded will increase and quantity supplied will decrease until equilibrium is reached.

Answer 1

The production possibility frontier would be a straight line if additional units of a good could be produced at a constant opportunity cost. An increase in the unemployment rate would result in a movement inside the production possibility frontier. In response to a surplus, the market price of a good will fall until equilibrium is reached.

Step-by-step explanation:

a. False. If additional units of a good could be produced at a constant opportunity cost, the production possibility frontier would be a straight line. This means that the opportunity cost of producing one more unit of a good would remain constant as more units are produced.

b. False. An increase in the unemployment rate would result in a movement inside the production possibility frontier, rather than a movement to a different point on the frontier. This is because an increase in unemployment signifies a decrease in available resources, leading to a decrease in production capacity.

c. True. In response to a surplus, the market price of a good will fall. As the price falls, the quantity demanded will increase and the quantity supplied will decrease until equilibrium is reached, where the quantity demanded equals the quantity supplied.