Revision Library

revisionlibrary.co.uk

A-Level · Economics

ECO.MIC1 Scarcity, Choice and the Production Possibility Frontier

AQA 7136 · Calculators not allowed · about 90 minutes

Total Marks

Name: _______________________________ Date: ____ / ____ / ______

Answer all questions. Full sentences are required in questions worth 4 marks or more. Spend about 90 minutes in total on this pack.

1

Define scarcity in the context of an economy facing unlimited wants, naming the core consequence for resource allocation.

(Total for Question 1 is 2 marks)

2

State and briefly explain the three basic economic questions an economy must answer: what to produce, how to produce and for whom to produce, and link each to scarcity.

(Total for Question 2 is 4 marks)

3

Distinguish between opportunity cost and money cost, using a short example involving a farmer choosing between planting wheat and barley on the same land.

(Total for Question 3 is 4 marks)

4

Define the four factors of production (land, labour, capital, enterprise) and give one clear UK example of each.

(Total for Question 4 is 4 marks)

5

Explain the distinction between positive and normative economic statements, and give one short example of each about government spending on education in the UK.

(Total for Question 5 is 4 marks)

6

Draw a production possibility frontier (PPF) for an economy that can produce only food or clothing. On your diagram, show and label a movement along the curve from A to B (both points on the curve). In the prompt describe what the student should draw: axes labels, the curve, points A and B and a brief sentence stating why the movement along the curve occurs. Award marks for correct axes labels, correctly drawn concave PPF, points on the curve and correct explanation of movement.

Figure (to be drawn): Draw a concave production possibility frontier with Food on the vertical axis and Clothing on the horizontal axis. Mark and label two points A and B on the curve, with A at a higher Food and lower Clothing combination and B at a lower Food and higher Clothing combination. Show a movement arrow from A to B along the curve.

(Total for Question 6 is 4 marks)

7

Draw a production possibility frontier (PPF) and show an outward shift of the curve. In the prompt describe what the student should draw: original concave PPF and a new concave PPF shifted outwards in parallel (or generally outward), label old curve PPF1 and new curve PPF2, and mark a point on PPF1 and its feasible improvement on PPF2. Award marks for correct labelling, correct direction of outward shift and an explanation linking the shift to growth sources such as increased capital or technology.

Figure (to be drawn): Draw original concave PPF labelled PPF1 and a new concave PPF to the right labelled PPF2. Mark a point X on PPF1 and show a corresponding higher production point X2 on PPF2. Indicate the outward shift direction with an arrow.

(Total for Question 7 is 5 marks)

8

Draw a production possibility frontier (PPF) and show an inward shift of the curve. In the prompt describe what the student should draw: original concave PPF and a new concave PPF shifted inwards, label PPF1 and PPF2, mark a point on PPF1 that becomes infeasible on PPF2, and explain a cause such as natural disaster or large emigration reducing productive capacity. Award marks for correct labelling, correct inward shift direction and valid cause explanation.

Figure (to be drawn): Draw original concave PPF labelled PPF1 and a new concave PPF to the left labelled PPF2. Mark a point Y on PPF1 that lies outside PPF2 after the inward shift.

(Total for Question 8 is 5 marks)

9

Consider a PPF for an economy producing only cars and bread. On the PPF diagram, point C lies inside the curve, point D lies on the curve and point E lies outside the curve. Explain what each point (C, D and E) indicates about resource use and feasibility in this economy. Award marks for identifying inside/on/outside meanings and linking to unemployment or unattainable output.

(Total for Question 9 is 4 marks)

10

A small island economy can produce only fish or coconuts. If it devotes all resources to fish it can catch 120 units; if all resources go to coconuts it can harvest 80 units. Suppose the economy moves from producing 90 fish and 20 coconuts to producing 70 fish and 40 coconuts. Calculate the opportunity cost of moving from the original point to the new point in terms of fish forgone per extra coconut gained, and state whether the movement is along the PPF assuming both points are on the curve. Show workings and give the numerical answer and unit.

(Total for Question 10 is 4 marks)

11

Define the production possibility frontier (PPF) and explain briefly two reasons why a PPF might be concave to the origin in a real economy. Give UK-relevant examples where appropriate.

(Total for Question 11 is 5 marks)

12

Evaluate the view that an outward shift in a country's production possibility frontier is primarily caused by increases in capital investment rather than by improvements in technology. You should make use of diagrams, discuss both sides of the argument, consider the size and timing of effects and distributional issues, and give a supported conclusion.

(Total for Question 12 is 25 marks)

Mark scheme · ECO.MIC1 Scarcity, Choice and the Production Possibility Frontier

Question 1

B1 statement that resources are limited in supply relative to unlimited human wants
B1 consequence: choices must be made about allocation of resources
Answer: Resources are limited relative to unlimited wants, so choices must be made about how to allocate them.

Question 2

B1 what to produce: which goods and services to make given limited resources
B1 how to produce: choice of techniques and factor combinations to use the scarce resources efficiently
B1 for whom to produce: how output is distributed among individuals or groups in society
B1 each explanation linked to scarcity and the need to choose
Answer: What to produce: which goods and services should be made given scarce resources. How to produce: which combination of labour, capital and technology should be used to produce those goods efficiently. For whom to produce: how the output is distributed between households, firms and groups, deciding who gets what.

Question 3

B1 defines opportunity cost as the value of the next best alternative forgone
B1 defines money cost as the explicit monetary expenditure or price paid
B1 example: if farmer plants wheat, opportunity cost is the barley output forgone
B1 contrast: money cost would be seed, fertiliser and labour payments for wheat, which are cash expenses rather than the value of forgone barley
Answer: Opportunity cost is the value of the next best alternative forgone, e.g. the barley yield and revenue sacrificed when the farmer plants wheat instead. Money cost is the actual cash payments for inputs to grow wheat, such as seed and fertiliser.

Question 4

B1 land: natural resources, example e.g. farmland in East Anglia
B1 labour: human effort, example e.g. nurses in the NHS
B1 capital: man-made aids to production, example e.g. factory machinery in a UK car plant
B1 enterprise: organisation and risk-taking by entrepreneurs, example e.g. a tech startup founder in London
Answer: Land: natural resources such as farmland in East Anglia. Labour: human effort such as NHS nurses. Capital: man-made equipment such as machinery in a UK car factory. Enterprise: the entrepreneur who organises and takes risk, such as a tech startup founder in London.

Question 5

B1 defines positive statement as objective and testable about what is, was or will be
B1 defines normative statement as value judgement about what ought to be
B1 gives a positive example, e.g. 'A 5% increase in education spending will raise school capital investment by GBP 400 million' (testable, fact claim)
B1 gives a normative example, e.g. 'The government should increase education spending to reduce inequality' (value judgement)
Answer: Positive: objective, testable claim, e.g. 'A 5% rise in education spending will increase school capital investment by GBP 400 million.' Normative: value judgement, e.g. 'The government should increase education spending to reduce inequality.'

Question 6

B1 axes correctly labelled: Food (vertical) and Clothing (horizontal)
B1 concave PPF drawn and both points A and B placed on the curve
B1 arrow showing movement from A to B along the curve
B1 explanation: movement along the curve occurs due to reallocation of resources between food and clothing production, implying opportunity cost

Question 7

B1 original PPF labelled PPF1 and new curve labelled PPF2
B1 PPF2 correctly drawn to the right/outside of PPF1 indicating outward shift
B1 point marked on PPF1 and a higher feasible point marked on PPF2
B1 arrow showing direction of outward shift
B1 explanation linking outward shift to economic growth drivers, e.g. more capital, improved technology, larger skilled labour force

Question 8

B1 original PPF labelled PPF1 and new curve labelled PPF2
B1 PPF2 correctly drawn to the left/inside of PPF1 indicating inward shift
B1 point on PPF1 marked as now outside PPF2
B1 arrow showing direction of inward shift
B1 explanation giving a valid cause, e.g. natural disaster, loss of capital, emigration reducing labour, or war

Question 9

B1 point C inside the curve: resources are unemployed or used inefficiently, so output is feasible but less than potential
B1 point D on the curve: resources are fully and efficiently employed, representing maximum feasible combinations
B1 point E outside the curve: output is unattainable with current resources and technology
B1 link to causes: inside could be due to unemployment or idle capital; outside could be achieved only by growth or improved technology
Answer: C inside = inefficient use or unemployment so feasible but below potential. D on curve = efficient, full employment of resources, maximum feasible output. E outside = unattainable with current resources and technology, would require economic growth to reach.

Question 10

M1 method: fish forgone = 90 - 70 = 20; coconuts gained = 40 - 20 = 20; compute fish forgone per coconut = 20 / 20
A1 answer: 1 fish forgone per extra coconut, awrt 1 fish per coconut
B1 state that if both points lie on the PPF the movement represents an efficient reallocation along the PPF, showing the trade-off/opportunity cost
B1 units: fish per coconut explicitly stated
Answer: Fish forgone = 20; coconuts gained = 20; opportunity cost = 20/20 = 1 fish forgone per extra coconut. If both points are on the PPF, this is a movement along the PPF showing the trade-off.

Question 11

B1 definition: PPF shows maximum possible combinations of two goods an economy can produce given resources and technology
B1 reason 1: diminishing marginal returns/unequal factor suitability, as resources are shifted between goods opportunity cost rises
B1 develop reason 1 with example, e.g. agricultural land in the UK better suited to food than to heavy industry, so reallocating resources reduces efficiency
B1 reason 2: different factors needed by the two goods so reallocation becomes less efficient, e.g. specialised capital for car manufacturing in the UK is not as useful for agriculture
B1 short linking sentence: these factors make the opportunity cost increase as production shifts, producing a concave shape
Answer: PPF: the curve showing the maximum feasible combinations of two goods given available resources and technology. It is concave because of increasing opportunity cost when resources less suited to the alternative are used, and because of factor specificity and diminishing returns; for example UK specialised car-assembly capital is poor for food production, and prime farmland yields fall if used for industry.

Question 12

Level 1 (1-5): Basic explanation of how PPF can shift outwards, with limited analysis. May identify either capital investment or technology as a cause with little development. Little or no diagram use and weak or no evaluation.
Level 2 (6-10): Reasoned explanation of how both capital investment and technological improvement can shift the PPF outwards. Uses a simple diagram correctly and provides some analysis of timing and magnitude of effects. Limited evaluation, perhaps noting one weakness of the 'primarily capital' claim.
Level 3 (11-15): Detailed analysis comparing capital investment and technological improvement as drivers of PPF shifts. Good use of diagrams showing outward shift, discussion of relative magnitude, speed, and sustainability of effects, consideration of distributional consequences and potential crowding out, and a clear, supported judgement.
Level 4 (16-20): Detailed, well-developed analysis of both capital investment and technological improvement, with accurate diagrams and clear UK-relevant or other real world application. Balanced evaluation considering timing, magnitude, sustainability, crowding out and distributional effects, with a tentative supported judgement.
Level 5 (21-25): Comprehensive and sustained analysis of capital investment and technological improvement as drivers of PPF shifts, integrating accurate diagrams and well-chosen examples throughout. Evaluation weighs the relative importance of each driver, considers interdependence, timing, magnitude and distributional consequences in depth, and reaches a fully supported, balanced conclusion on which is primarily responsible for outward PPF shifts.
Indicative content:
- Diagram: draw PPF shifting outwards from PPF1 to PPF2 and label; show how either more capital or better technology shifts the curve.
- Argument that capital investment primarily causes outward shift: increases productive capacity by adding machinery, infrastructure and factories; direct increase in factor inputs; examples such as new transport infrastructure raising output possibilities; capital accumulation can be targeted to sectors with large output potential.
- Argument that technological improvements primarily cause outward shift: raise total factor productivity, allow more output from same inputs, can shift PPF outwards across many sectors simultaneously; examples such as digital adoption, automation and improved medical technology increasing both quality and quantity of output.
- Timing: capital investment often requires long construction times and may take years to raise capacity; technology can sometimes have rapid effects but also may require complementary capital and skills to realise benefits.
- Magnitude and sustainability: capital provides tangible capacity but can depreciate; technology may yield sustained efficiency gains but can be subject to diffusion lags and diminishing returns if not widely adopted.
- Crowding out and financing: publicly funded capital investment may raise interest rates or require higher taxes, potentially reducing private investment; conversely, policy that subsidises R and D can spur technology adoption without equivalent crowding out.
- Distributional impacts: capital investment may create regional winners (where infrastructure built) and losers; technology can displace workers and require reallocation, affecting income distribution.
- Interdependence: often both are needed, e.g. new technology may require capital investment to implement; capital without technological improvement may yield smaller gains than combined policies.
- Policy implications: balanced approach, supportive education and training to complement capital or technology, targeted investment in complementary assets, consideration of short-term versus long-term goals.
- Conclusion: judgement that neither factor alone is always primary; relative importance depends on country context, existing capital stock, human capital and institutional capacity; give a supported view, e.g. for a capital-poor developing economy capital investment might be primary, while for an advanced economy productivity-enhancing technology may matter more.

Scarcity, Choice and the Production Possibility Frontier - Worksheets, Questions and Revision