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.
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