Question: How does a production possibility chart assist in outlining opportunity cost?
A) By illustrating the potential gains from trade.
B) By showing the efficient allocation of resources.
C) By identifying the maximum achievable output levels.
D) By highlighting the trade-offs between production choices.
Answer: D) By highlighting the trade-offs between production choices.
Explanation: A production possibility chart, also known as a production possibility frontier or curve, is a graphical representation of the different combinations of two goods that can be produced with a fixed set of resources and technology. The chart shows the maximum output levels that can be achieved for each good, given the available resources.
The opportunity cost is the value of the next best alternative forgone when a choice is made. In other words, it is the cost of what must be given up to obtain something else. The production possibility chart highlights the trade-offs between production choices, as an increase in the production of one good necessarily means a decrease in the production of the other good. The opportunity cost of producing more of one good is the forgone production of the other good.
Therefore, the correct answer is option D) By highlighting the trade-offs between production choices. Option A) is incorrect because gains from trade are not directly related to opportunity cost, but rather to specialization and exchange. Option B) is incorrect because efficiency is not the same as opportunity cost. Option C) is incorrect because while the chart does identify maximum achievable output levels, this information alone does not explain the concept of opportunity cost.
Question: Opportunity cost occurs because of a producer’s need to:
A) Maximize profits.
B) Allocate resources efficiently.
C) Meet consumer demand.
D) Make trade-offs between production choices.
Answer: D) Make trade-offs between production choices.
Explanation: Opportunity cost is the cost of choosing one option over another, and it occurs because of the need to make trade-offs between production choices. A producer must decide how to allocate limited resources among different production options, and every time a choice is made, there is an opportunity cost associated with the option that is not chosen.
Option A) is incorrect because while maximizing profits may be a goal for producers, it is not the cause of opportunity cost. Option B) is also incorrect because while efficient resource allocation may help to reduce opportunity cost, it is not the cause of it. Option C) is incorrect because meeting consumer demand may be a goal for producers, but it is not the cause of opportunity cost.
Therefore, the correct answer is option D) Make trade-offs between production choices, as opportunity cost arises from the need to choose between different production options and the associated trade-offs between them.