Question : Statement 1: The PPC illustrates the concept of opportunity cost.
Statement 2: As an economy produces more of one good, the opportunity cost of producing those goods decreases.
Option 1: Statement 1 is true, and statement 2 is false.
Option 2: Statement 1 is false, and statement 2 is true.
Option 3: Both statements 1 and 2 are true.
Option 4: Both statements 1 and 2 are false.
Correct Answer: Statement 1 is true, and statement 2 is false.
Solution : The correct answer is (a). Statement 1 is true, and statement 2 is false.
The PPC illustrates the concept of opportunity cost because it shows the tradeoff between producing two goods. For example, if an economy produces more cars, it will have to produce fewer computers. This is because the resources that are used to produce cars cannot also be used to produce computers.
Statement 2 is false because the opportunity cost of producing a good increases as more of that good is produced. This is because the economy has to give up more and more of other goods in order to produce more of the first good.
Question : Statement 1: The production possibilities curve (PPC) represents the maximum combination of goods that can be produced in an economy. Statement 2: Points inside the PPC represent efficient resource allocation.
Question : Statement 1: The marginal rate of transformation (MRT) indicates the opportunity cost of producing one more unit of a good in terms of the other good.
Statement 2: The MRT is constant along the PPC, assuming a linear production possibilities curve.
Question : Statement 1: Inferior goods have a negative income elasticity of demand.
Statement 2: When consumer income increases, the demand for inferior goods decreases.
Option 1: Both statements are true.
Option 2: Both statements are false.
Option 3: Statement 1 is true, and statement 2 is false
Option 4: Statement 1 is false, and statement 2 is true.
Question : Statement 1: The marginal rate of transformation (MRT) measures the rate at which one good can be exchanged for another along the PPC.
Statement 2: The MRT is constant along the entire PPC.
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