Question

1, Since there is a tradeoff between environmental quality and level of income

a. efforts to reduce pollution are successful only in high-income economies

b. individuals with high incomes must pollute more than low-income individuals

c. all of the above

d. efforts to reduce pollution raise costs of production and reduce incomes

2. According to economists, productivity can be increased by

a. improving the education of workers

b. restricting trade with the foreign countries

c. raising minimum wages

d. raising union wages

Cars	Computers
10	230
12	220
14	?

Given the table above, if the PPF is bowed outward, then "?" could be

a. 210

b. 220

c. 230

d. 200

Answer 1

1. Reducing pollution is successful in low-income countries too. Also, individuals with high incomes must not pollute more. On the other hand, efforts to reduce pollution requires cost and hence it reduces income. Therefore, the correct option is efforts to reduce pollution raise costs of production and reduce incomes.

2. Raising union wages may not necessarily encourage workers to work more and hence may not add to productivity. Similarly raising minimum wage also may not add to productivity as it may discourage workers from working hard, similar to increase in union wage. Restricting trade with foreign countries also may not increase productivity, rather technical know-how can be encouraged through trade to increase productivity. On the otherhand, improving education of workers will improve their skills and hence adds to productivity. Therefore, the correct option is improving the education of workers.

3. The correct option is 200.

If it is 210, then PPC will be a straight line. If it is 220, the PPC will be convex to the origin and if it is 230, the PPC will be U-shaped. The PPC will be bowed outward only if it is 200 as shown in the duagram below. A PPC which is bowed outward follows the law of increasing opportunity cost.