ECONOMICS UNIT 3 – The PPF

Q1 - Define what is meant by opportunity cost and explain why it exists.

Q2 - Outline the general factors that affect the overall size of a nation’s production possibility
frontier.

Q3 - Distinguish the following pairs of terms:

a. allocative efficiency and productive (technical) efficiency

b. intertemporal efficiency and dynamic efficiency.

Q4 - Thinking of the production possibility diagram:

a. Explain what is meant by an economy’s productive capacity.
b. Explain the problems that arise when a nation is not operating at its productive capacity.

Examine the table below showing annual production possibilities (’000 tonnes per year) for a country
that can produce only wool or cotton with the resources available.

c. Use these data to draw and fully label a production possibility diagram.

d. Define what is meant by an efficient allocation of resources, giving examples referring to

the data in the table.

e. Calculate the opportunity cost for each of the following economic decisions:

i. producing 25 000 tonnes of cotton per year

ii. producing 35 000 tonnes of wool per year

iii. moving from production possibility B to possibility C.

Q5 - In 2022–23, the Australian government planned to spend $38 billion (6 per cent of budget
outlays) on defence. Explain likely opportunity costs arising from this decision.